Insurers punish us for our sins

Britain's financial pariahs: people with 'imperfect' lifestyles face higher premiums or outright rejection
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Hedonists, beware: the joys of overeating, drinking too much and not exercising may cost you more than your waistline. Unhealthy people face the prospect of being charged more for life insurance than fit friends.

Richard Branson's Virgin Direct is the latest insurance company to look at tailoring its premiums more closely to the perceived risk. Virgin has just launched a set of cheap-and-cheerful, no-frills life insurance policies sold direct over the phone. While it aims to be competitive across the board, it is most competitive for relatively healthy people.

Traditionally insurance has been about pooling risk, but that is changing. A combination of increased competition and more sophisticated technology has persuaded some insurers to set up computer databases that offer risk profiles of potential customers. Premiums are tailored accordingly and cover is refused to some people.

With car or house insurance, for example, the database might reveal that claims are more prevalent among people who keep pets. More bizarrely, one insurer even asks applicants which newspaper they read.

The approach is now spreading to life insurance, where as well as basing premiums on age, sex, medical history and whether or not you smoke, companies such as Virgin are looking at factors such as height and weight, occupation and home address. "We're trying to price people's mortality [chances of dying early]," says Rowan Gormley, the managing director of Virgin Direct.

This reduction in cross-subsidy might seem reasonable, especially if you are a good risk. But, "while it's fair enough you should pay more if, say, you're 5ft 3ins and drink 20 pints a day, you could end up with a whole swath of people who are effectively uninsurable," warns Jonathan Fry of Premier Investments, a broker in Guildford.

Car insurance has become particularly discriminatory. Narrower risk-rating bands mean that people who fall on the wrong side of the good/bad risk assessment can face much higher premiums. Take an example quoted by Premium Search, an insurance broker in Northampton, of a 36-year-old married man based in Kent driving a Ford Mondeo worth pounds 9,500. If he has a clean driving record with five years of no-claims bonuses, the cheapest premium on offer is pounds 191. If he has one driving conviction and two recent claims, the best premium rockets to pounds 644.

Take as another example a 20-year-old man living in Guildford and driving a Ford Sierra Sapphire. If he is a civil servant, Direct Line will charge a pounds 469 premium. But if he is a film producer, the premium (quoted by Direct Line's high-risk sister company, Privilege Insurance) jumps to pounds 771. If he then switches to a Porsche, the premium more than doubles to pounds l,746.

With car insurance you should expect to struggle to get cover, or affordable cover, if you fall into the following categories:

Being young counts against you, particularly if you are male. Most of the cheapest insurers won't offer cover to drivers of either sex aged under 21, and some rule out male drivers aged under 25.

Being too old does not help either. Anyone aged over 74 is automatically refused a quote by most of the direct insurers.

The more powerful the engine, the less loved you will be by insurers. Churchill, for example, says it will cover some Mercedes models, but not the sports car ones.

Film stars, pop stars, actors, athletes, journalists (unless deskbound) and anyone else in a profession with a statistically awful claims record also count as "sub-standard risks".

Recent driving convictions are very damaging. Generally, a single speeding conviction within the past three years or so will be tolerated, but any more and you are judged a high risk. A drink- driving conviction is even worse.

Home insurance is less fraught with exclusion zones. Most insurers will quote for most risks, and they deny that they "red line" certain high- risk, inner-city postcodes, refusing to quote for anyone living in them. But you may well struggle to get a quote for contents insurance if you have made a number of recent claims. And you will find it well-nigh impossible to switch to a new buildings insurer if your house has a recent history of subsidence.

With life and medical insurance, around nine out of 10 people should be able to get a quote without too much difficulty. But a few insurers, such as Sun Alliance, specialise in so-called "preferred lives" - a select, healthy 40 per cent of the population. The biggest damage you can do to your premiums is still to smoke. The main problem area in terms of not being able to get cover at all is your medical history. If you are chronically disabled, for example, most insurers do not want to know.