The ABI is working with trade associations to develop a system to reduce the cost of liability insurance for companies with good health and safety practices.

An ABI spokesman said that, under such a system, companies could earn health and safety credits which would be recognised by insurers.

ABI head of general insurance John Parker said: "Liability insurers have a genuine desire to ensure that the level of premiums rewards good health and safety practices."

The Federation of Small Businesses (FSB), which has expressed concerns about the lack of correlation between health and safety records and liability premiums, applauded the initiative.

An FSB spokesman said: "Any move that enables insurers to differentiate between responsible and irresponsible businesses and which enables responsible businesses to get cover is extremely welcome.

"We would urge the ABI to give priority to this initiative."

In its response to the Office of Fair Trading's investigation into liability insurance, the ABI said that rising reinsurance costs and changes to personal injury law were responsible for liability premium increases.

In particular, the ABI blamed the introduction of conditional fee arrangements which, it said, had resulted in a threefold rise in the cost of employers' liability claims.