Watchdog declines merger of insurers
Higher insurance premiums and less cover were real risks if a merger between Tower and Vero Insurance had been allowed, the competition watchdog says.
The Commerce Commission has turned down the merger, which would have brought together the country’s second and third largest general insurers and given Vero 30 per cent of the total insurance market.
Vero is a subsidiary of Australian company Suncorp Group, while Tower is New Zealand based.
Suncorp New Zealand chief executive Paul Smeaton said the proposed takeover of Tower would not have substantially lessened competition.
But commission chairman Dr Mark Berry said the commission was not satisfied this was the case.
‘‘The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets.’’
Berry said other smaller insurers did not offer the ‘‘level of constraint’’ on the market that Tower imposed.
‘‘Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage,’’ Berry said.
Smeaton previously said the proposed merger would have created a business with gross written premiums of $1.6 billion and would ‘‘strengthen the firm’s strategic position’’.
Suncorp NZ also has a stake in AA Life and AA Insurance through a joint venture with the Automobile Association (AA).
Combined, Vero and AA Insurance control 25 per cent of New Zealand’s insurance market.
The merger would have meant two Australian insurance giants – IAG and Suncorp – would cover 76 per cent of the insurance market.
IAG owns the State, NZI and AMI brands and became New Zealand’s largest insurer after it bought Lumley Insurance in 2015 with the commission’s approval.
Insurance Brokers Association of New Zealand (Ibanz) chief executive Gary Young said any lessening of competition in the insurance market was bad for consumers. But IAG’s takeover of Lumley was harder on brokers than a Vero-Tower merger would have been because brokers did not act as intermediaries for Tower, Young said.
Suncorp offered to buy Tower for $219.3 million, or $1.30 a share in February, increasing the offer to $1.40 a share in June. It has also taken a 20 per cent stake in Tower.
The bid trumped a previous offer for Tower of $1.17 a share from Canadian company Fairfax Financial Holdings.
Tower said it would consider the impact of the commission’s decision on its business plans, including a possible capital raising in the next few months.
Massey University insurance expert Michael Naylor said the failed merger could be a blessing for Tower in the long term.
Tower had to be sold to someone, but staying small could be an advantage in handling massive IT changes faced by the industry.
Naylor said Suncorp and IAG were ‘‘scrambling’’ to catch up to innovations in big data, artificial intelligence, and end-to-end administration computing that Google and Facebook and some insurers overseas were developing.