The level of cover offered by some new critical illness insurance policies may be reduced under new proposals published today by the organisation representing UK insurers.

The Association of British Insurers (ABI) is consulting on ways to change the structure and description of the policies, which pay out if a holder is diagnosed with one of a list of illnesses including cancer, heart attack and stroke.

The proposed changes are designed to improve understanding among consumers and reduce the future cost of providing cover.

The ABI's critical illness working party said that improvements in medical care meant that the impact on a person's life of contracting some of the illnesses traditionally covered by this type of insurance had been reduced.

At the same time, illnesses are being diagnosed earlier and at younger ages, leading to earlier claims on critical illness policies.

The increased likelihood of a payout has pushed some insurers to pull out of the market, while others have increased the cost of cover. The ABI said that between 2002 and 2004 the cost to the consumer of buying a policy with a guaranteed premium had risen by 60%.

To cut the cost to its members of offering cover, the ABI has recommended a change in the way cover for certain illnesses is structured. Cancer, which accounts for around 50% of critical illness claims, is at the heart of the rethink.

While current guidelines include all cancers in a single definition, the ABI has proposed that insurers offer two levels of cover against the disease: "full" cancer cover and a cheaper "restricted" version.

It suggests that full cover could include all malignant and invasive cancers, while restricted cover could pay out only in the event of a policyholder contracting cancer in a specified part of their body or suffering from a cancer that spreads.

The ABI said making this distinction could lower the cost of policies and increase choice for consumers, but it acknowledged work would be needed to ensure that people were aware of the significantly different levels of cover they were choosing between.

The issue of consumer awareness was also taken up by the working party. The ABI said the two main reasons for claims being rejected by its members were that they failed to meet the terms of the policy or the customer had failed to disclose a pre-existing condition.

It said greater clarity might be achieved by changing the name of the cover to something that more accurately reflects the restrictions on the cover available - one example offered is "listed critical illness insurance" - and by insurers including more descriptive headings for the illness definitions they include in policy documents.

"Critical illness insurance helps people protect themselves and their families from the potentially devastating financial consequences of critical illness," said Nick Kirwan, chairman of the working party.

"These proposals will bring greater clarity to consumers about how the product works and exactly what it does and doesn't cover. They will also help ensure that this type of cover continues to be available at an affordable price."

Ayesha Owusu-Barnaby, head of campaigns at the charity Macmillan Cancer Relief, said the changes to cancer cover were "a backward step" that could make it harder for people to make a claim.

She added: "If you've just been diagnosed with cancer, probably the last thing you want to do is have to prove to your insurance company how ill you are, particularly as the nature of the disease and its treatment can mean you may feel well one day and too ill to work the next.

"It begs the question, what point is there taking out critical illness policies in the first place if they won't pay out if you are diagnosed with UK's biggest killer disease?"

However, the ABI stressed that this is just the start of a consultation process and that the charity was invited to contribute to the discussions.

Critical illness insurance was introduced in the UK in 1986 and now covers around 12 million adults and children. Any changes made as a result of today's proposals will not affect existing policies.

A list of definitions of the illnesses covered by critical illness insurance is available here.