The House of Commons' Transport Select Committee has published a report calling on motor insurers to abandon sharp practices in the management of car accident claims and for the Government to impose a higher threshold for the payment of any compensation in whiplash cases in a bid to reduce the cost of motor insurance premiums.

The report warns that the spiralling cost of motor insurance is primarily the result of market dysfunction and, in particular, the escalation of uncontested claims for whiplash injuries.

Louise Ellman, Labour MP for Liverpool, Riverside, who chairs the Transport Committee, launched the report by saying, "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. Although we strongly support access to justice, 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."

Asserting that the rise in personal injury claims is the main reason for the rise in premiums, Ellman continues, "Many of these claims are for whiplash, an injury where diagnosis is often subjective and therefore very costly for insurers to challenge. The threshold for receiving compensation in whiplash cases should be raised and, if the number such claims does not fall significantly, the Government should bring forward primary legislation to require objective evidence - both of a whiplash injury and of it having a significant effect on the claimant's life - before compensation is paid"

Questioning 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, Committee chair, 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. Greater transparency is also essential. To expose the 'merry-go-round', the Government must oblige insurers to provide clear information to consumers about how and where they pay referral fees."

The Committee is also calling on the Government to review how well the 'pre-action protocol' and 'online portal' established to handle low value insurance claims have operated since their introduction in 2010. Results should be published within six months. They would also like to see the establishment of a cross-departmental ministerial committee on reducing the cost of motor insurance and publish a plan to address each aspect of the problem. Any changes should send a clear message to the insurance industry that it expects 2008 data protection legislation to be fully respected and impose stricter penalties for any breach. Initiate an investigation of cold calling undertaken to generate personal injury claims and then examine the legal and regulatory options for curtailing this activity. Finally, the committee confirms that previous recommendations related to the cost of insurance for young drivers will be followed up further in a forthcoming inquiry on road safety.