RACWA drops bombshell with $1.35b deal to sell insurance business and enter 20-year IAG partnership

WA will lose ownership of yet another iconic local brand when the Royal Automobile Club of WA sells off its insurance business as part of a $1.35 billion deal with Australia’s biggest insurance group. The WA motoring mutual on Thursday stunned its 1.3 million members with the news it would collect $400 million from the sale of RAC Insurance to ASX-listed behemoth IAG In the biggest shake-up of the group’s 120-year history, RAC also revealed it would reap a further $950m under a 20-year exclusive distribution agreement with IAG covering its branded home, motor and niche insurance products. RAC will continue to distribute general insurance products under the RAC Insurance brand while IAG will take on underwriting, claims management, product development and pricing. The deal does not affect RAC’s roadside assistance business or its growing portfolios of WA holiday parks and resorts and retirement villages. As the State’s largest general insurer, RAC accounts for about 55 per cent of the motor market and about one-third of the home and contents market. But chief executive Rob Slocombe told The West Australian that RAC was now operating in an increasingly complex and evolving regulatory environment and faced “significant” challenges amid higher claims volumes and expenses, along with rising reinsurance costs. It was also being required to hold larger capital reserves for claims and natural disasters. “As a smaller organisation, the level of regulatory change is significant, and it’s become increasingly complex,” Mr Slocombe said. “Since COVID insurance costs have continued to rise. Last year, we did about 218,000 claims, more than $800m in paying claims, and the costs within those have continued to increase. “We’ve seen supply chain costs increase — so parts, we’ve seen labour increases. With those sort of increasing numbers of claims, we’re seeing time frames blowing out a bit in some of the claims experiences, which isn’t really what we want to deliver to our members.” Mr Slocombe said the deal with IAG would give the mutual national scale, better global reinsurance capability and leading technology to support its members. But he moved to reassure members who preferred the benefits of having policies managed by WA-based staff that IAG had recognised the value of a local workforce and was committed to maintaining a significant WA presence, including claims handling. “It’s a sale of the underwriting components, a sale of the claims and product development and pricing,” he said. “RAC distribution continues, doing the sales and service. So members will absolutely still be talking to our people at Joondalup. They’ll still be talking to RAC insurance people at West Perth.” IAG chief executive Nick Hawkins said RAC was “a highly trusted institution with a quality insurance business and strong member relationships”. Smaller mutuals such as RAC have found it increasing difficult in recent years to meet costlier reinsurance costs — insurance for insurers that helps to offset risk — partly because of more extreme weather events around the world that are impacting premiums elsewhere around the globe. RAC more than doubled its annual surplus to $105.44m last financial year off the back of an average 18 per cent hike in premiums that helped to offset increased claim costs. Revenue for the fiscal year leapt 25.5 per cent to $1.2b, fuelled by the higher premium prices, growth in policy numbers and increases in insurance cover. It paid out $849m to cover 218,000 claims, up from just over 200,000 a year earlier. The tie-up with IAG — which also operates the NRMA Insurance, CGU and WFI brands — remains subject to regulatory approvals and is expected to be completed in the first half of next year. The purchase is not IAG’s first foray into the WA insurance landscape but it doesn’t give it a massive membership base that has a 92 per cent retention rate and an avage of 2.9 products per member. It bought SGIO in 1998 and it was rebranded as NRMA in late 2022. IAG entered a similar strategic partnership with RACQ in Queensland late last year worth $855m and also has an agreement with RACV in Victoria Adding RACWA is expected to bring an extra $1.5b into IAG’s business and deliver $100m of synergies. Mr Slocombe remained tight-lipped on where RAC would direct the $1.35b windfall, only saying it wanted to continue to invest in and expand member products and services, including road safety. “Over the last few years, we’ve expanded into parks and resorts. We’ve expanded in our aged care business with building new retirement accommodation, and we’re expanding in some other areas as well,” he said. “We also want to continue with our really important advocacy, whether it’s about road safety or the environment, infrastructure and on really important community initiatives. “Transactions like this really enable us to ensure that we can continue to do the really important work that’s really the focus of our mission, about reducing the impact of trauma on our roads.” RAC now has eight holiday parks stretching from Esperance to Broome than now attract upwards of 400,000 booked nights. It will add another at Ningaloo Reef next year.