Motorists can expect to see a hike in car insurance premiums following a change to the way personal injury claims are calculated, an actuary company has warned.

Motor actuary firm English Matthews Brockman said motorists could see the cost of their policies rise by 2.3% as insurance companies try to recoup the millions of pounds they will be forced to pay out in higher compensation claims.

The group said a decision by the Lord Chancellor to reduce the rate at which insurers can assume a lump sum settlement will grow will cost the industry £350m a year.

Lord Irvine announced last week that the discount rate, which is used to calculate lump sums insurers have to pay in damages, was being lowered from 3% to 2.5%.

The lower the discount rate, the higher the level of damages that insurance companies have to pay.

The decision will have an even greater impact on liability insurers, who will need to hike up rates by around 8% in order to finance their personal injury claims.

Mike Brockman, a partner in English Matthews Brockman, said: "Contrary to public perception, insurance companies are not awash with cash. Higher personal injury awards may be socially desirable, but the public should understand that the money can only come in the long run from higher premiums."

He added the decision would also hit the NHS and other organisations that have to pay damages resulting from personal injury.

It is also bad news for creditors of collapsed insurer Independent Insurance, as it will push up the cost of the group's outstanding personal injury claims.

Claims for non-compulsory liability insurance will be paid by Independent's provisional liquidator PricewaterhouseCoopers from the funds available.

Claims for compulsory liability insurance will be paid by the Policyholders Protection Board, which will itself become creditors of the group.