Insurers will be able to own law firms, following the publication of the Clementi report on the legal services in England and Wales.
But the conflict of interest rules will mean they can handle only "restricted" types of legal work, according to RAC head of legal affairs Jonathan Gulliford.
Gulliford said the proposed rules on conflicts of interest "might have caused some firms to go back to the drawing board if they had planned to buy a legal practice".
He said insurer-owned law firms would only be able to handle very restricted types of legal work because of the conflict rules.
Under the proposals, a legal disciplinary practice (LDP) "will not be able to take instruction on a case where the owner has an adverse interest in the matter".
This means a firm will not be allowed to take on a case where the owner has a direct interest in the legal outcome of the matter being dealt with. For example, an insurer-owned law firm will not be able to deal with a motor claim, if the claimant is covered by the same insurer.
But implementation of the proposals is unlikely to happen for another two years, said a spokeswoman for the Department for Constitut-ional Affairs (DCA).
The DCA is currently working on a White Paper on the proposals due in the summer.