The increase in claims for whiplash injury is the main cause of the rise in motor insurance premiums, a report by MPs states today.

The Government should impose a higher threshold for the payment of any compensation in whiplash cases, the report from the House of Commons Transport Committee says.

The cost of treating whiplash is considered the main reason for the rise in car insurance prices. Costs have risen by between 10% and 40% over the past year, depending on which survey you believe.

MPs also called on the insurance industry to abandon sharp practices in the management of car accident claims.

Claims firms often pay the victim's insurer for details of those injured in an accident to encourage them to claim from the other side's insurer, which pushes up costs.

The committee also said the Government should establish a cross-departmental ministerial committee to look at reducing the cost of motor insurance.

'Cold callers promote problems'

Launching the report today, the committee's chairman, Louise Ellman says whiplash claims are very costly for insurers to challenge and this was a type of injury "where diagnosis is often subjective".

She says: "Drivers should not be railroaded by cold callers into launching legal action.

"The insurance industry must abandon sharp practices that push up premiums such as passing drivers' personal data to other parties or taking secretive referral fees from solicitors, garages and car hire firms.

"We recommend that the bar to receiving compensation in whiplash cases should be raised.

"If the number of whiplash claims does not fall significantly as a result there would, in our view, be a strong case to consider primary legislation to require objective evidence of a whiplash injury, or of the injury having a significant effect on the claimant's life, before compensation was paid."

She adds: "Insurers, solicitors and claims management companies have themselves driven up the cost of motor premiums by encouraging people caught up in road accidents they did not cause to claim for personal injury, car hire and other legal costs."

MPs also questioned the effectiveness of the Government's recent decision to ban referral fees relating to personal injury cases, particularly once rules restricting the ownership of law firms are relaxed.

Ellman says: "The Government should ensure that the new legislation is implemented in a manner that will prohibit insurers from receiving referral fees across the board rather than simply in relation to legal action."

Insurers' response

Nick Starling, director of general insurance at the Association of British Insurers, says: "We are pleased the committee has recognised that spiralling personal injury claims are the real reason car insurance premiums have been increasing and made recommendations for meaningful reform.

"It is absolutely critical that Britain's whiplash epidemic is tackled once and for all.

"We are baffled though that the committee has again called for the transparency of referral fee arrangements of insurers.

"Referral fees should be banned altogether and not made more transparent, and that ban should apply to all organisations receiving them, not just insurers."