The British insurance industry turned down almost £44bn of critical illness, income protection and life assurance claims last year, according to new research from Prudential.
The company said critical illness policies had the poorest track record, with insurers rejecting one in five CI claims. About half these rejections were because the insurers discovered that customers had not disclosed something about their health when they took out the policies - usually inadvertently.
The balance of the rejections came about because the policy did not cover the condition the customer claimed for. However, in many of these cases, customers were not warned what they would and would not be covered for at the time they were sold the policies.
Prudential, which is launching a redesigned insurance policy that it says will allow customers to claim more quickly, said that 1.6 million Britons have had claims on protection policies rejected over the last five years, with the average failed claim worth £26,435.
"Suffering from any of the big three - cancer, heart attack and stroke - will feel critical to a customer," said Angus Maciver, the director of Prudential. "However, because of medical advances and the fact that diseases are diagnosed much earlier these days, often at the point of diagnosis a customer's condition might not be critical enough to trigger a payout.
"This is a problem for the industry as it erodes consumer confidence and creates a lot of negative feeling between the insurer and customer at a time when the customer is at their most vulnerable."
The Association of British Insurers said it supported any move to ensure that fewer claims were rejected. A spokesman said the industry was tackling the issue of non-disclosure by using more thorough application procedures.