Advisers have warned clients that insurers are increasingly cherry-picking customers as a result of the credit crunch.

This move echoes that made by those mortgage lenders who now reserve their top deals for “less risky” customers. Most mortgages today require at least a 25% deposit, while the best buys require at least 40%.

Matt Morris, policy adviser at Lifesearch, an insurance broker, said: “With less credit available, insurers are charging more if you have less than perfect health.”

Income protection policies, which offer cover for redundancy, are being increasingly rejected because of higher unemployment fears, and those seeking critical illness and life cover are also starting to suffer, specialist brokers report.

Some insurers that once promised guaranteed cover without medical reports have stopped accepting clients from certain brokers. Others are penalising perfectly healthy clients who have a family history of medical conditions.

Engage Mutual promised “guaranteed acceptance” for the over-50s without the need for medical reports, but has stopped accepting clients from broker Totally Insured Group (TIG) in case “too many” unhealthy people apply.

TIG specialises in finding cover for those unable to do so due to pre-existing medical conditions. Its managing director, Ron Moonesinghe, said it is the first time he has encountered the problem in his 26 years’ experience. “It’s normally the other way around — not enough sales,” he said. “Engage Mutual says it doesn't ask medical questions — but if you’re someone who might have a medical problem, it just doesn’t want to know.”

Engage Mutual replied: “We don’t discuss our specific distribution arrangements but if a TIG customer came direct to us, we would be happy to consider cover for them.”

Insurers are also increasing premiums by at least 25% for those with a high body mass index (BMI) for their height, on top of extra charges for being overweight. Using BMI to increase premiums was a “cheap shot”, Moonesinghe said. The threshold before a premium is loaded with extra charges has also reduced. You could find a non-loaded policy 18 months ago with a BMI of up to 32. Today that threshold can be down to 29, he said.

Legal & General (L&G), one of Britain’s biggest insurers, said it will load premiums by 200% if a customer has a BMI of over 40, although rates vary depending on age and other factors, such as smoking.

Although all insurers pick and choose the risks they will take on, there are fears they are rejecting customers outright because they prefer to avoid paying for medical reports.

These reports can cost up to £83 a customer, according to Moonesinghe. L&G says it spent £11.5m on medical reports in 2006, yet 11% of its customers were rejected after their reports were presented — costing L&G £1.2m in effect.

In one case a TIG client in his 50s who had a heart attack two years ago but is now a “fit” non-smoker, was rejected by Norwich Union without even seeking a medical report. However, L&G, which insisted on a medical report, accepted him. Moonesinghe added: “These people are being screened out from going any further because insurers don't want to foot the costs of the medical reports.

“A lot of them won’t bother doing the tests now if you have even the slightest thing wrong with you. They’ll just say no.”

Some insurers will penalise people who are fully fit and healthy but have suffered from a condition in the past — or even if their relatives have had health problems.

In one case, Wendy Rose, 68, of Newtown, Mid Wales, was hit by a loading of more that 100% on her Liverpool Victoria life insurance policy because her sister and daughter had died after breast cancer. Wendy has never shown any symptoms of cancer so feels unfairly penalised. “All my medical reports show that there was no sign of cancer, so why should I have to pay so much more?”

She eventually switched to Norwich Union, which offered cheaper cover, although there was still a loading of 35% on a standard policy.

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