The Tesco branded insurance products will be marketed, priced and sold by the retailer, while Fortis will provide underwriting and claims management services.
The two will initially invest £100m each in the venture, which will see the formation of Tesco Personal Insurance to arrange and manage claims, creating more than 1,500 jobs.
Tesco has plans to widen its product portfolio and create a full banking service. The supermarket recently announced plans to open a customer service centre in Glasgow, creating 800 jobs in its Tesco Personal Finance division.
Tesco is currently seeking a commercial and marketing director for the personal finance division after Paulette Rowe left earlier this year after just seven months.
The venture will be 50.1% owned by Fortis and 49.9% owned by Tesco.