The deal allows GRE to use the RAC's name to market its financial service products to the club's six million members and to the public. The arrangement will last for 10 years and is renewable. In return, the RAC will market its own products to GRE customers.
The takeover, the first of its kind, marks a fresh twist in the telehone insurance war which, despite its rapid expansion in the past few years, has been dominated by a handful of companies including Direct Line and Churchill.
GRE expects that the RAC broking arm's 325,000 customers will mostly or wholly switch their policies to Guardian Direct, the company's telephone insurance arm. By buying customers in this way, GRE is bypassing the need to build up a base by means of its own underwriting and marketing skills alone.
The RAC's broking arm will continue to trade under its RAC brand name, but will benefit from Guardian Direct's underwriting and customer service systems. In turn, the sale relieves the RAC of its own broking arm at a time when several national insurance brokers, including Swinton and AA Insurance, have faced difficulties in competing with direct insurers.
Last year, the AA's motor insurance arm admitted losing millions of pounds for the first time in the wake of the continuing premium war and mass desertions by its customers. Swinton has been forced to close branches and set up its own telephone broking service to compete with the opposition.
Neil Johnson, chief executive officer at the RAC, said: "Guardian Royal Exchange has demonstrable strengths in brand development and marketing. I am delighted that its philosophy is in tune with our own thoughts of how to develop the brand to enhance services to RAC members. This new alliance will bring real benefits to both organisations and their customers."
John Robins, group chief executive at GRE, said: "This agreement adds an extremely powerful brand to our marketing. GRE will strengthen considerably its position in the direct writing market in the UK.
The deal, which was helped by Phoenix Securities, involves a pounds 50m payment by GRE to the RAC. In addition, GRE takes on pounds 4.7m of RAC Insurance Services' debt. A further pounds 18m will be paid by GRE depending on the number of policies renewed by RAC policyholders through GRE.