Employers welcomed the OFT decision to investigate the liability insurance market.

However, insurers have warned they will be strident in directing the investigation to what they consider the true causes of the liability crisis.

The OFT launched a "fact-finding study" into liability insurance on Monday.

It will examine premium increases, how the market works and what lessons can be learned from international experience, and report back in spring 2003.

Engineering Employers' Federation (EEF) health and safety head Gary Booton was pleased the OFT responded to the EEF's call for an investigation.

"It's a clear indication this issue is being taken as seriously as it needs to be," he said. "Now we're waiting for the Department of Work and Pensions to release the timetable and terms of reference for its own review."

An ABI spokesman said the association welcomed a study into the market.

"The primary influence is the increase in personal injury awards," he said.

"We'll certainly be making the point that the increases are justified because the market can't cope with current compensation levels."