Norwich Union's (NU) proposed joint venture with HSBC could spark a price war in the personal lines market, analysts have warned.
The joint venture will see the formation of a new insurance company, HSBC Insurance Co, which will underwrite and distribute motor, household and other general insurance products to HSBC's 10.2 million customers.
The venture, part of HSBC's strategy to boost its share of the general insurance market, is aiming to become a top 10 general insurance company.
But analysts warned that the move could lead to fierce competition in the personal lines market as HSBC looks to ramp up its penetration in the sector.
One analyst said: "The market is not growing much overall, so expansion can only come from stealing other companies' business."
“The market is not growing much overall, so expansion can only come from stealing other companies' business
Anthony Broadbent, banking analyst with Sandford Bernstein said: "If HSBC is to try and sell insurance competitively to UK consumers it is probably not good for the [insurance] industry."
HSBC currently has only 1% of the general insurance market. This is behind rivals such as HBOS, which has 8%, and Royal Banks of Scotland, which has 19% through its subsidiaries Churchill and Direct Line.
The bank already distributes NU's insurance products through its 1,670 branches, producing approximately £100m of business a year. It is understood this could increase to as much as £500m if the bank's targets are hit.
The final details of the ownership of the joint venture, its management structure, financing and profit will not be revealed until the third quarter of the year.
Details about products have also not been disclosed. Norwich Union has only revealed that they will be specifically developed for HSBC and will be different from those available to Norwich Union.