Motor insurer Ockham blamed the arrival of no win no fee litigation for a profits warning it issued earlier this week.

The company is adding £11m to the £274m already set aside to cover claims for its Highway motor arm, the seventh biggest motor insurer in the UK.

Ockham chief executive David Poole said the news would prompt other insurers to reassess relevant claims reserves.

He added: “It seems inevitable that the industry must continue to raise premiums in order to rebuild and maintain its margins going forward.”

But Nigel Munns, an associate at Bacon and Woodrow, said he expected the industry had already factored in the rise in bodily injury claims in its reserves.

“There has been a steady rise in both the frequency and severity of bodily injury claims for the past five years,” he said.

“No win no fee has helped push up the frequency of small claims, such as whiplash, but other factors, such as changes to the Ogden compensation tables, has pushed up the amount of compensation for severe claims. Both have had an equal impact.”

Highway's average premium achieved rose by 17% in 2000, following a 21% increase in 1999, ahead of the market as a whole.

“Highway's pure 2000 underwriting year will show an overall profit, so our subsidiary Highway Insurance Company will record a profit in its first year of trading,” said the stock exchange statement.