Cab-Line Insurance is raising the level of public liability cover included in its standard public and private care hire motor insurance.
This will take affect as of 1 September.
Cab-Line director Mark Griffiths said: "We shall be increasing the level of public liability cover on all motor insurance policies for the hire trade from £2m to £5m."
He said the reason for such a large increase was the "emergence of American-style compensation claims companies" which was encouraging people to sue.
He also warned local authorities which employ private hire companies to make school and hospital runs that they should check whether drivers have adequate public liability to cover any legal cases.
"Councils that fail to do so, risk not only having to make huge financial payouts but also suffering from the adverse publicity and loss of reputation which carrying uninsured losses inevitably entails," said Griffiths.
