The Law Commission is advocating removing two of the three main requirements governing who can claim for negligently inflicted psychiatric illness.
Lloyd's motor syndicate Summit estimates such a move could lead to an additional ten per cent of new claimants with between two to five per cent added to premium levels.
The two restrictions mooted for removal are the necessity for the claimant to be at the scene of the accident, and the means by which they learn about it.
The only restriction remaining would be a close tie of love and affection with the person killed or injured.
Other Law Commission proposals involve increasing damages for wrongful death.
It suggests that bereavement damages are increased to £10,000 per claimant with an aggregate cap of up to £50,000 per death.
The current limit stands at £7,500 per death. Summit claims manager Stuart Laird warned against further moves that will accelerate claims inflation.
"The price paid for these changes will be higher premiums," he said.
In another report (No 257), the Law Commission has already recommended substantial increases in the level of awards for general damages for pain, suffering and loss of amenity.
It has suggested raising claims currently valued between £2,000 and £3,000 by a minimum of 50% but no more than 100%.
Various parties were consulted in arriving at these recommendations including members of the public.
The Commission recognises that the changes may need legislation, but is recommending that the proposals are introduced by the judiciary in their guidelines.
The ABI believes the move could push the annual claims burden up by several hundred million pounds.