Proven whiplash fraud costs motorists just £4 a year, economic researchers have claimed.

A paper published by the consultancy firm Capital Economics, funded by the claimant lobby group Access to Justice (A2J), found insurance industry figures are distorted due to the definition of fraud.

Campaigners say the Association of British Insurers calculates fraud on the basis of both suspected and proven fraud, which has manufactured the £50 figure which forms the basis for impending personal injury reforms.

But suspected fraud is defined by the ABI as any claim where the claimant withdraws the application, fails to provide documents or ceases communication with the insurer.

Andrew Twambley (pictured), A2J spokesman said: ‘Insurers don’t like paying claims, because it impacts their profits, so it is in their interests for a customer to drop out of the process.

‘Thanks to their own criteria, that customer is also branded a fraudster by the insurance industry.

‘That’s a win-win for the insurer because they aren’t making a payout and can use unfairly swollen fraud statistics to lobby the government.’

Using the ABI’s own estimates, the cost of fraud falls to £4 per policy once suspected fraud is removed. Capital Economics suggests the cost is £27 per policy – around half of insurers’ estimates – even when proven and suspected frauds are taken into account.

The figure is crucial to government plans, subject to a consultation coming out later this year, to scrap general damages for minor soft-tissue injuries and increase the small claims limit to £5,000.

Twambley said claimants are now urging the government to disregard insurance industry data and find empirical evidence to support practical steps to combat fraud.

‘Nobody is denying that some insurance fraud exists, but there are better ways of reducing it than removing a injured person’s right to redress if they are hurt through no fault of their own.’

The ABI has described the government’s plans, outlined in chancellor George Osborne’s autumn statement last year, as a ‘significant breakthrough’ in tackling the compensation culture and good news for motorists.

It has said insurers will pass on savings made by any reform to consumers, although the government has admitted it has no mechanism in place for policing or measuring that commitment.

In response to the A2J research, Mark Allen, fraud and financial crime manager at the ABI, said it is transparent about the methodology behind its fraud statistics.

‘The issues raised by Access to Justice are just the bleatings of a self-interested sector which fears the prospect of losing a highly lucrative source of income.

‘Insurers remain committed to tackling fraud at all levels, including the many frivolous and exaggerated personal injury claims which are so often fuelled by unscrupulous claims management companies. The government is to be applauded for taking this issue so firmly in hand.’