An inquiry into whiplash claims led by the House of Commons transport select committee will begin later this year, the committee’s chair has revealed.

Louise Ellman MP said the study would focus on how to cut the number of fraudulent claims and make sure victims of road accidents who are injured can still get compensation.

Ellman, Labour member for Liverpool Riverside, told the Association of British Insurers conference on motor insurance that committee members met to decide on the inquiry.

She added that insurance companies would have to explain why they do not challenge more claims they believe to be fraudulent. ‘In the rush to get rid of fraudulent claims we shouldn’t dismiss the possibility that people have a genuine injury,’ she said.

The announcement of an inquiry comes in the midst of dramatic changes to the personal injury sector. As well as the Legal Aid, Sentencing and Punishment of Offenders Act coming into force on 1 April, fixed recoverable costs for low-value work will fall by 58% from the end of April.

In addition, consultation will close this Friday on raising the limit in the small-claims court from £1,000 to £5,000. The government has stated its intention to drive costs out of the system to ensure lower car insurance premiums.

John O’Roarke, managing director at one of the country’s biggest insurers LV=, warned consumers not to expect vastly reduced premiums as a result of the new fixed costs.

‘[I expect] a 3% reduction in premium, but generally we have already seen reductions in premiums of 12% and I am not hopeful there will be much more to come.’

O’Roarke claimed that 50% of whiplash claims were exaggerated or fraudulent, and that premiums would fall by as much as 15% if they could be eliminated.

He also issued a warning to any insurers looking to join with a claims management company to form an alternative business structure in response to the ban on referral fees from next month.

‘CMCs are going to want to run as an ABS as it’s a way round the ban but I am less convinced about the rationale for insurers to go down that route – we have an opportunity to clean up our act.’