TOUGHER laws to crack down on false insurance claims are urged in a new report on the insurance industry. It also recommended that solicitors should be obliged to pay the defendant's legal costs when the courts reject claims - particularly if they were found to be spurious, exaggerated or fraudulent.

The report said a new offence should be created under general fraud legislation "for the falsification of documents or attempts to pay money through falsified or exaggerated insurance claims".

It said eliminating fraudulent claims would be helped by disbarring claimants from pursuing some or all of their claim where it was shown to be fraudulent or exaggerated.

The report, which examined the growth and development of the industry, said a cap should be put on solicitors' fees where compensation was below a certain level. This, it maintained, would encourage direct negotiations with the insurance companies.

It also said the level of VAT on legal fees should be reduced "as a contribution to reducing the costs of claims in Ireland".

It said the industry must also educate the public on the impact of spurious or fraudulent claims on the level of premiums paid by the majority of policyholders.

The report earmarked the reduction of Irish claims costs to a level closer to the European average as one of the strategic challenges facing the industry.

One weakness of the non-life insurance sector, it said, was a dependence on investment income to offset underwriting losses.

The report, which was compiled by the Irish Insurance Federation and the Department of Enterprise and Employment, said the high rate of corporation tax, at 38 per cent, limited companies' abilities to use retained earnings to fund growth.