Sainsbury’s will tomorrow relaunch its motor insurance business in direct competition with Tesco to open up a new front in the fierce high Street battle for customers.

The Sainsbury’s deal, in partnership with RBS Insurance, promises to give customers a saving of about 15% on premiums in the form of Nectar loyalty card points. Shoppers will also be able to earn loyalty points equal to one per cent off their bills for the next two years. The deals come with average motor insurance premiums estimated to have risen by about 30% to £815 in the past year in the UK.

Tesco is believed to be approaching 5% of the entire British motor insurance market, as supermarkets turn to financial services in a bitter struggle for profits. The retail giant believes it can use its powerful brand names to convince consumers to switch from other providers, such as tarnished high street banks.

Until now Sainsbury’s has provided motor insurance via esure but Ben Tyte, the supermarket’s head of motor insurance, said the company wanted to expand and ‘make a significant impact on the market.’

Tyte said that the use of the Nectar card to reward those purchasing insurance was designed to increase customer loyalty. Sainsbury’s insurance business is understood to have increased new business by about a quarter in the past year and to have reported pretax profits of £30m. Clearly, though, despite major growth in insurance lines such as pets and home, Sainsbury’s feel that they are being eclipsed by Tesco in the area of financial services.

Tesco recently bought out RBS from a joint financial services venture that it now runs singlehanded, and it plans to begin offering current accounts and mortgage lending. In addition, Tesco’s share of the motor insurance market seems destined to grow following the recent launch of its online second-hand car dealership.

With price competition in their mainstream business fiercer than ever due to the continued rise of global commodity prices, supermarkets are desperate to keep customers loyal. Research by Sainsbury’s has shown that shoppers who buy a financial product from the company typically spend more in store.