Medical insurance? Aisle three

Those who manage to get past the delights of Page 3 might have noticed a business scoop last week in The Sun - something that's nowhere near as rare as non-aficionados of Britain's favourite tabloid might imagine. The Sun said, and sources back it up, that Tesco is in talks with AXA PPP to launch a range of private medical insurance (PMI) products by the end of the year. The plan, apparently, is to sell a range of policies, from basic cover to high-end, alongside the fruit and veg.

Call me cynical, but I just can't see how this is going to work. Here are my thoughts - I'm happy to be corrected by those in the know.

The supermarket giant has turned selling into an art form, accounting for £1 of every £8 of retail spend in the UK. It's now got a stranglehold on 31.6% of the market.

Since turning its attentions to financial services in 1997, Tesco Personal Finance has proved a formidable player, with five million customers and 20 products. The retailer boasts having the fastest-growing car insurance brand ever, winning over customers by cutting extraneous extras such as automatic courtesy cars, which in turn enabled it to keep its prices low.

No one's arguing that Tesco knows how to sell, and that it has managed to use that expertise to flog low-cost financial products. Part of its genius is the Tesco Clubcard, which gives the company an amazing insight into the lives of its ten million members.

Buy enough dog food and Tesco knows to post you its best pet insurance deals. Likewise, with suntan lotion and holiday cover, those pine-scented car deodorisers and motor insurance.

But it's one thing to shift units of highly commoditised motor cover, where vicious competition means that price is almost everything. It is another to sell an expensive discretionary purchase, such as private medical cover. Although corporate cover remains relatively popular, established PMI insurers have struggled to widen the cover's appeal and have barely managed to increase the number of individuals taking out policies over the past ten years.

Their efforts were further hampered by Gordon Brown, one of whose first decisions as chancellor was to take away the tax breaks on PMI (and he wonders why NHS waiting lists shot through the roof, but that's another story).

When you're spending more than £500 on an insurance product, the natural tendency is to go with the quality name. Just because Tesco does a reasonable line in own-brand baked beans doesn't mean that you want it to be the one you call to discuss sensitive medical matters.

PMI is also a personalised product. Turning it into a one-size-fits-all insurance will make the normally careful underwriting that goes into PMI almost impossible to maintain. Add to that the public perception that medical insurance rarely pays out when it is most needed and even the master retailer has an uphill battle to make this one work, I reckon. Unless, of course, Terry Leahy has some inside info on Treasury plans to sweeten the purchase of PMI with some tax incentives. Either way, it's going to be an interesting one to watch. IT