The insurance industry could face a massive rise in claims after the Law Commission this week advocated allowing the NHS to reclaim the cost of treating all accident victims.

Currently, the NHS can reclaim the cost of treating only road traffic accidents.

Under the new proposal, the NHS could seek the money spent on treating victims of a rail crash from a railway company's insurer if the accident could be shown to have been caused by negligence.

However, the Law Commission has added that its proposal should first be subjected to a cost-benefit analysis before it is enacted.

Spokeswoman Frances Frost said the subsequent rise in premiums such a move would cause should be taken into consideration.

Vic Rance, ABI spokesman, said the greatest concern for the insurance industry would be whether it would face a retro-active bill.

"Insurers should not have to pay for costs which they could not calculate into the premium at the time," he said.

But he added that the Law Commission proposal raises a number of problems, such as whether the NHS will pursue money from people without insurance.

Motor insurance is compulsory, while insurers fund accidents by non-insured motorists to the tune of £100 million a year though the Motor Insurers' Bureau.

It is estimated that the NHS could recover up to £1 billion if it recovered the entire cost of accident treatment every year. Last November, the Government made it compulsory for the NHS to claw back the costs of road traffic accidents which the Association of British Insurers calculated has added £100m on to the motor claims bill this year.

The Lord Chancellor is now likely to issue a consultation document on the Law Commission proposal.

Plans to allow the NHS to recoup accident costs have been made possible by empowering the compensation unit of the Department of Social Security to undertake the administration. It was previously too costly for individual hospitals to recoup the money.

Other major changes proposed by the Law Commission include raising bereavement damages from £7,500 to £10,000, as well as allowing siblings, children or long-term co-habitees to join spouses and parents on the list of people who can make claims.