Accident victims will see their compensation awards dramatically cut if a new voluntary code of practice between insurance companies and lawyers comes into effect.

The code will ensure that in agreed cases accident victims have access to rehabilitation medicine early so that they can return to as full a life as possible sooner. The treatment would be funded by the insurance company concerned as part of the final settlement.

Traditionally, rehabilitation takes a back seat as claimant lawyers and insurance companies fight it out over liability and a final settlement. And that includes cases where liability is not at issue.

According to claimant lawyers and insurers, who are supportive of the code, that delay adds substantially to the final settlement cost.

The new initiative comes against a backdrop of rising bodily injury claims and the Woolf legal reforms which aim to speed up civil actions.

The available figures make for worrying reading. Bodily injury claims, including serious injuries like a head injury or paralysis, today account for 36% of all motor insurance premium compared to 23% in 1993, and the trend is increasing.

Under the new proposals, accident victims would be assigned a case manager – possibly a former acute nurse – to monitor their treatment. Frances McCarthy, vice-president of the Association of Personal Injury Lawyers (APIL), said it was a code her members could work with. "My clients are as keen as mustard to get back to work," she said. "A bit of physiotherapy at the right time will cut the cost of claims. They'll be happier and so will I."

The International Underwriting Association (IUA), which analysed 700,000 bodily injury claims over the last decade, said that the UK lags behind other countries in funding early rehabilitation.

The code is supported by the ABI and the International Underwriting Association as well as APIL and the Motor Accident Solicitors' Society and the Forum of Insurance Lawyers.

Those who withhold support may find themselves disadvantaged, according to Andrew Parker of Beachcroft Wansbroughs who helped draft the code.

"In not applying the code and in not trying to make rehabilitation work, the outcome may be less beneficial both for claimant and for insurer," he said.

If the initiative is a success then the code could be made legally binding by the Lord Chancellor's Department.