The Office of Fair Trading has launched an inquiry focusing on the effect of personal injury claims on steep rises in motor insurance premiums. Evidence gathered by the OFT and published today suggests that premium costs rose by 12% between 2009 and 2010, with a further 9% increase in the first three quarters of 2011.

Those figures will be viewed as vindication for the government and insurers who have long argued that personal injury litigation needs reform to bring down premiums.

The OFT says it has enough evidence that prices are falsely inflated to launch a study which should be completed by next spring. It may then decide to recommend that the issue be referred to the Competition Commission.

However, the OFT’s evidence was dismissed as a missed opportunity by opponents of measures to reform the claims process.

Andrew Dismore, of the Access to Justice Action Group, which campaigns for fairness in compensation claims, said: ‘The terms of reference for the inquiry excluded a review of the impact of accident cases on premiums. The government is legislating on this matter in an evidential vacuum and such research would have been invaluable.

‘We believe it would have confirmed our view that the legislation before parliament is based on one-sided, untested and inaccurate assertions from the insurance industry and does not reflect properly scrutinised, evidence-based policy.’

As well as personal injury claims, the cost of third-party non-injury claims, which include credit hire replacement vehicles and third party vehicle repairs, were cited as factors behind the rise.

The Association of British Insurers welcomed further inquiries into the ‘unnecessary costs and inefficiencies in the system’.

Nick Starling, the ABI director of general insurance, said: ‘As an industry we are absolutely committed to taking action to improve the market for the benefit of consumers and are already working proactively to develop market practices to remove unnecessary costs that drive up car insurance premiums.

‘We look forward to continuing to engage with the OFT as they undertake their market study and we hope that this will lead to improvements in the industry and lower premiums for our customers.’