The cost of private medical insurance has risen by over 50% in the last five years making it too costly for many to buy, said a report out today.

Market analysts Datamonitor said that the number of people with private medical insurance (PMI) policies fell by 12% between 1997 and 2002 as premiums rose by an average 54%.

The average individual premium rose from £789 in 1997 to £1,218 in 2002, more than twice as expensive as the average group premium. Increasing numbers of claims and an increasing cost of these claims due to advances in medical science were the main factors accounting for the rise, said the group.

In the same period the number of critical illness insurance policies sold rose, exceeding one million in 2002 and growing 29% in that year alone. Critical illness insurance pays out a lump sum if the insured is diagnosed with any of a range of serious conditions, which include cancer, heart disease, strokes and multiple sclerosis.

"Evidence suggesting that within the next four years everyone will know someone who has had a critical illness and survived makes for a compelling argument when trying to sell this type of insurance," said Fiona O'Regan, author of the report.

However Datamonitor believes this trend may be reversed in the near future as critical illness sales fall on the back of recent premium hikes.

The insurance market has responded to the drop in PMI sales by designing new lower cost policies that aim to share the cost of treatment, up to a maximum amount, with the policyholder. Some insurers have designed products that allow the policyholder to 'self-pay', by offering protection against any large private medical costs, leaving the policyholder to meet relatively minor expenditure.