The Treasury is set to publish a report later this month that adds further fuel to the social exclusion debate and the alleged practise of redlining in the insurance industry.

Redlining – denying cover based on postcodes – is described in the report as "uninformed, irrational and probably contrary to the supplier's real commercial interest".

The ABI, however, denies that this practise exists in the UK.

Tony Baker, deputy director general of the ABI, stated that the research on redlining used in the Government report is based on the 1998 Joseph Rowntree report. This found that only two per cent of people without cover were actually refused insurance.

"This could be for a number of reasons, such as because they have been convicted of insurance fraud," he said. "The social exclusion issue is not one of availability and suggestions that redlining exists are erroneous."

Proposals set out by a Treasury taskforce aim to ensure that millions of people who live in deprived regions have the same access to insurance and banking as those living in more prosperous areas.

It estimates that more than six million people in the UK do not have any home contents insurance while 60% of lone-parent families have no life insurance.

The ABI currently has two working parties looking at these areas and aims to publish its research findings later this year.

The majority of the work is geared towards what makes a successful scheme for deprived areas and best practises.

"The insurance industry would love to sell to those six and half million people who do not have insurance cover but it is not an easy market," Baker said.

"Half of these people are not interested in insurance and do not believe in it. The rest are people who have had insurance at some point but discontinued it because their circumstances changed. They might have re-evaluated their financial circumstances, because of job loss or sickness and so contents insurance might not rank high.

"It is not a static group of people because if their circumstances change they might start up insurance cover again."

Baker added that for large insurance companies it is difficult to market insurance to this social group of people and this is why working with housing associations and Post Office has had some success.

One of the recommendations in the Treasury report is that the ABI explores further "the potential for the Post Office to extend the insurance it offers" and that insurance companies should "work with credit unions to explore the potential for offering general insurance through credit unions."

The Treasury is also encouraging local authorities and social housing providers to consider the advantages of participating in rent schemes that include insurance.