Motor insurance is a "highly dysfunctional market" in which firms' pursuit of profit has led to higher prices for consumers, a report by MPs has said.
In some cases, business practices have not been in the consumer interest and have "inadvertently encouraged criminal activity", the report from the House of Commons Transport Committee said.
There was no clearer example of this than "insurance firms' willingness to pay compensation for whiplash claims which they suspect are fraudulent without requiring the claimant to undergo a medical examination".
The committee said steps were being taken to prohibit insurers from offering to settle whiplash claims before the claimant had undergone a medical examination.
"We agree and would like to see this practice banned altogether," the committee said.
The MPs also said they agreed in principle with the Government's requiring of courts to strike out "dishonest" insurance claims where, for example, there had been gross exaggeration.
But the committee cautioned against hasty legislation "because there may be complex legal implications".
The report said progress in enabling insurers and claimant solicitors to share data about potentially fraudulent claims had been slow.
The MPs said that when data sharing began it should be compulsory, otherwise only the most reputable firms would be involved.
The report went on: "We also note evidence that new forms of potentially dishonest practice - such as ordering additional medical reports on psychological harm arising from road traffic accidents -are emerging.
"The Government should press the Solicitors Regulation Authority to stop some solicitors from playing
the system to maximise their income from unnecessary medical reports."
Launching the report, the committee's chairman Louise Ellman, Labour MP for Liverpool Riverside, said: "This is our fourth report on the cost of motor insurance and while premiums are now falling, aspects of the market remain dysfunctional and have encouraged criminality to take root.
"Further action is still required to tackle fraud whilst protecting genuine claimants."
Simon Douglas, director of AA Insurance, said: "Despite the reforms already introduced, insurers are still footing the bill for the increasing number and cost of personal injury claims, particularly whiplash, even though the number of crashes and injuries on Britain's roads continues to fall.
"This suggests that attempts at fraud are still rising, while insurers are even starting to see claims for psychological injury following even very minor collisions.
"Insurers are working hard to identify attempts at fraud and are becoming increasingly successful, as figures released earlier this year underlined, but more can be done."
James Dalton, the Association of British Insurers' head of motor insurance, said: "Motor insurers are determined to drive out unnecessary costs to ensure that customers get the best motor insurance deal.
"We are pleased the Transport Committee recognise that average motor premiums have been falling.
The ABI's premium tracker shows premiums have reduced 14% since early 2012.
"This reflects the industry passing on savings to consumers resulting from reforms introduced to address fraudulent whiplash claims. Recent announcements to tackle grossly exaggerated claims and stop solicitors offering free ipads or cash for whiplash injuries are further welcome developments. "
He went on: "A medical report for a minor injury claim produced years after a car accident adds no value whatsoever. Removing an insurer's ability to settle a claim without a medical report will only serve to increase insurers' claims costs, and consequently premiums.
"More needs to be done to sustain lower motor insurance premiums. The Government needs to press ahead with the delivery of a nationwide panel of independent and accredited experts producing medical reports in support of whiplash claims; ensure that the small claims track limit is increased to £5,000, and ask whether general damages should be awarded for whiplash injuries at all."
John Spencer, president of the Association of Personal Injury Lawyers, said: "The Government should listen to the committee's warning about avoiding hasty legislation to dismiss claims for 'fundamental dishonesty'.
"Despite the fact that it is a complex area of law, it was introduced in the Criminal Justice and Courts Bill at such a late stage in the House of Commons it had no scrutiny there at all."
He went on: "Blanket dismissal of such cases will have damaging consequences for injured people with legitimate claims for compensation. While the definition of 'fundamental dishonesty' remains unclear, injured people may find themselves spuriously accused of fraud by unscrupulous insurers.
"Embarking on a legal case can be daunting enough for injured people, but the threat of being falsely accused of overstating their suffering could lead people with genuine claims to underplay their symptoms or fail to bring cases at all. "