LONDON - Rising costs of medical treatment -- and insurance premiums -- have put consumers off taking out private medical cover, a report shows.

The size of the private medical insurance market has plummeted, recording its first decline in 2005, according to the study by independent market analyst Datamonitor.

That was attributed to higher medical costs and higher claims forcing insurers to push up premiums.

"Like the NHS, insurers are suffering from the ill-effects of high medical costs," said James Dieppe, financial services analyst and author of the report.

"Expense is still a major deterrent and insurers need to reassure consumers that they are getting good value."

The number of people with individual private medical insurance fell 10 percent from 2001 to 2005, while premiums increased by an average of 6.5 percent per year, according to Datamonitor's analysis of Association of British Insurers' statistics.

A proliferation of new policies launched in 2005 -- with some of the biggest names in the private medical insurance (PMI) market targeting a new generation of price-sensitive consumers with low-cost products -- had failed to halt the exodus of customers, the study found.

The outlook is bleak too: insurers interviewed by Datamonitor are more pessimistic about the market this year than previously.

Some insurers believe there has been a lack of innovation in the market, while others feel the public is simply more confident in the NHS now than in previous years.

As corporate schemes have grown, some personal policyholders have also switched into the group market, where premiums are much lower -- further hampering efforts to attract new individual policyholders.

Datamonitor said the trends are likely to continue. It forecast that policyholder numbers in the personal sector would continue to fall by an annual average rate of 3 percent until 2011.

As new treatments appear on the market and medical costs continue to rise, insurers face an "unenviable" battle to cut premiums, the report said.