7 Feb 2014

Tower questions IAG's planned purchase

6:55 am on 7 February 2014

Tower insurance is calling on the Commerce Commission to look closely at Insurance Australia Group's planned purchase of Lumley, saying it will give the Australian insurance company too much control.

IAG plans to buy Wesfarmers insurance businesses, including Lumley, for $A1.845 billion.

IAG already owns the NZI, State and AMI brands in New Zealand and claims a 39 percent share of the $5 billion New Zealanders pay in insurance premiums each year.

If it gets the green light to purchase the Lumley operations, which employ about 640 people in New Zealand, IAG's market share will rise to about 45 percent.

Tower chairman Michael Stiassny says he wants the Commerce Commission to look closely at the deal because it's a major transaction which would see more than two thirds of the market controlled by one player.

He says Tower is a small player and would not like to see one major player driving the market's activities because it could do things like set pricing which could be unhelpful to its competitors.

Mr Stiassny says having one major player could also pose a risk if there were another event such as the Christchurch earthquake.

He says the Reserve Bank is interested in ensuring all insurance companies have the solvency available to withstand shocks that could occur.

"When we have one particularly large player and therefore we're suspect to their ability to withstand those shocks rather than having it spread across a number of players."