The personal injury compensation system should be overhauled immediately, insurers urged on Tuesday, to save millions of days spent on legal wrangling and hundreds of millions of pounds in costs.

The government put forward proposals to reform the system almost a year ago, including plans to tighten the timescale for insurers, a simpler process for negotiating compensation levels and early notification of claims.

It has pledged to set out the next steps within weeks, following the end of the consultation process.

“Our compensation system is failing many claimants,” said Stephen Haddrill, director general of the Association of British Insurers (ABI). “It is too slow, riddled with high legal costs and undervalues rehabilitation. Insurers want to pay compensation and arrange rehabilitation faster than the current system allows. Personal injury claims following a motor accident take on average two years to settle, with three years on average for workplace claims. This is unacceptable.”

The ABI estimates that implementing the proposals now would save those concerned a cumulative total of 110m days a year dealing with personal injury claims following motor accidents alone. It has calculated that for every £1 paid out in compensation claims, 40p is spent on legal and other costs.

For personal injury claims arising from motor accidents, the legal bill was more than £1bn ($2bn) a year – adding an extra 10 per cent to the cost of motor insurance, the ABI said. “Every day without change is another day of unnecessary delay for claimants,” said Mr Haddrill.

However, the Association of Personal Injury Lawyers said the answer to cutting costs lay “largely in insurers’ own hands, by admitting liability early in the vast majority of cases where liability is not in dispute and, having made those admissions, [sticking] to them”.

It added: “What we need is a system focused entirely on benefiting injured people, and not just about cost-cutting for insurers.”

The ABI’s calls are backed by the CBI, the employers’ organisation, and by Citizens Advice.

The Ministry of Justice said last year’s publication was a consultation on proposals to improve the personal injury claims process.

“A summary of responses and the government’s next steps will be set out in the ‘response to consultation,” said an official.

This was likely in the next week or two.

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