Recently Norwich Union has written to all its clients on its Hospital Cash Insurance Plan telling them that they are lowering the upper age limit from 71 to 65. This has lead to a storm of protest. But consider the facts.

The Hospital Cash Insurance Plan provides cover of up to £50 per day if the policyholder is hospitalised due to an accident and £25 if hospitalisation is due to illness. In this plan all policyholders are charged the same premium irrespective of their age. The problem has been that someone in the 65 to 71 age group is six and a half times more likely to be hospitalised than someone who is 35. That inevitably means that as everyone in the scheme pays the same premium, the younger members must be subsidising the older ones.

Norwich Union says that if they had not made the decision to reduce the upper age limit, then premiums across the whole scheme would have increased. As it is, with this change, premiums remain at their current level.

Some commentators have claimed that this is age discrimination. But is it? Surely it is a commercial decision which benefits the majority of people in the scheme who are under 65. Without the age change, they would be faced with paying more.

This highlights the issues involved in the Governments Equalities Bill which is currently being pushed through. As its name implies, this Bill is trying to outlaw discrimination but the insurance industry is trying to resist the Bill. It would seem that one of the results of the Bill would be that under the proposed law, insurers would be banned from using age as a basis for pricing insurance. As the Association of British Insurers point out, age is a relevant risk factor that insurance underwriters should be able to take into account when pricing a policy.

If this Bill goes ahead, I wonder how it will affect the pricing of life insurance policies? If anyone out there knows, please let me know.