Government insists whiplash reforms will be introduced "as soon as possible"

The news came as the Ministry of Justice revealed the detail of the plans will be consulted on early next year and the measures will be introduced "as soon as possible".

The agreements come after a roundtable meeting on the 9 December - between the insurance industry and Ministers - to discuss the Chancellor's Autumn Statement announcement that the Government would end the right to cash compensation for minor whiplash injuries and raise the upper limit for the small claims court for personal injury claims from £1000 to £5000.

It has been estimated that whiplash claims cost the country £2 bn a year and add £90 to the average motor insurance policy.

However, a number of market players including both claimant and defendent lawyers have warned the consultation will not be "plain sailing".

Justice Minister Lord Faulks said: "We are determined to crack down on the culture of fraud and exaggerated claims in the motor insurance industry, which means car owners are forced to pay higher premiums to cover the false claims of others. This culture is boosted by an industry that encourages exaggerated claims through cold calling and it is right that we tackle this.

"Insurers back these much-needed reforms and have committed to handing over savings to motorists quickly."

James Dalton, director of general insurance at the Association of British Insurers, responded: "The Government reforms are a significant breakthrough in tackling the UK's compensation culture and are good news for motorists.

"Reforms to the Small Claims Track Limit and the end to cash compensation, for low value injuries, will help to bring down unnecessary costs in the motor insurance market and honest motorists should be the beneficiaries."