THOUSANDS of Norwich Union's policy holders will lose out on their entitlement to free shares in the forthcoming flotation because their policies are effectively owned by banks and building societies.

Those most likely to be affected are members who have taken out mortgage protection policies with the company, which are assigned to the financial institution with which they have a mortgage.

By law, Norwich Union must issue these free shares to the institutions, bypassing the named policyholder. But, as most of the policies are issued under a single group policy with the various banks and building societies, the benefit to those institutions will be minuscule.

Institutions such as the EBS, for instance, will only be entitled to a single allocation of free shares under the group policy, netting it around £800. The EBS's head of lending, Mr Martin Walsh, said the society had taken legal advice on the issue and deeply regretted the fact that many of its customers would not be entitled to free shares.

investors with non profit policies, such as mortgage protection, will get 150 free shares, while those holding with profits ones will receive 300 free shares plus additional shares based on the size of their investment.