In a report into the cost of motor insurance, the Transport Committee said that "sharp practices" by the industry, such as passing details of injured drivers to claims management companies and taking referral fees from solicitors, had led to the "spiralling cost" of motor insurance.
The number of injury claims arising from road accidents has doubled in the last decade, despite a 33% fall in road accident casualties, according to the report.
The rise in personal injury claims, particularly uncontested whiplash cases, was the main reason behind the increase, the Committee said. It recommended that the threshold for receiving compensation in these cases, where "diagnosis is often subjective and therefore very costly for insurers to challenge", should be raised to discourage claims.
"We note the Government's argument that its legal reforms should reduce the money in the system and encourage insurers to defend claims more vigorously," the report said.
However, if the number of whiplash claims did not fall significantly the Government should make objective evidence of both the injury and its effect on the driver's life a legal requirement before compensation can be paid, it said.
The Committee's second report into rising insurance premiums was published as a follow-up to the Government's response to its March 2011 report on the issue. Although the cost of insurance premiums had risen more slowly than before in 2011, the annual rate of increase remained well above inflation at 16.4%, the Committee said.
Committee chair Louise Ellman said that insurers themselves were to blame for the increase in costs to consumers by "encouraging people caught up in road accidents they did not cause" to claim for compensation.
"Although we strongly support access to justice, drivers should not be railroaded by cold callers into launching legal action," she said.
She said that stricter penalties should be imposed for any breach of data protection laws which led to customers' details being passed on to claims management companies by insurers. The Government should also initiate an investigation into cold calling tactics used to generate personal injury claims.
Since the Committee's first report was published, the Government has brought forward legislation to ban referral fees in personal injury cases as part of its Legal Aid, Sentencing and Punishment of Offenders Bill. Consumer protection regulator the Office of Fair Trading (OFT) has also begun a study on the rising cost of premiums, which it expects to complete by spring.
Speaking to the BBC's Today Programme former Home Secretary Jack Straw said that whiplash was generally an "entirely artificial injury".
"Internationally, we have infinitely weaker necks than any other country in Europe. But moreover, within Britain, people in the north west [of England] have much weaker necks than those in Scotland, just across the border, because it's much more difficult to get compensation," he said.
The MP published an article in the Times newspaper last year investigating the way insurers were selling on the details of drivers who have accidents to personal injury lawyers to encourage them to sue for damages.
However, in a statement the Association of Personal Injury Lawyers (APIL) said that the law had to prioritise "innocent victims of genuine injury".
"Whiplash injuries can be extremely painful and can often linger, leaving some people with chronic conditions. It must be remembered that the burden of proof lies with the victim. The [insurer] has every right, and opportunity, to challenge medical opinion if it is thought to be wrong," APIL said.
It added that solicitors' rules on cold calling were already "extremely robust", and that "insurers and others who plague members of the public with cold calls [should] be subject to the same rigour".
Nick Starling, director of industry body the Association of British Insurers (ABI) said that he was "pleased" the Committee had recognised the spiralling cost of personal injury claims as the "real reason" car insurance premiums have been increasing.
"It is absolutely critical that Britain's whiplash epidemic is tackled once and for all and the Select Committee's acknowledgment that the bar to receiving compensation for whiplash is too low is a step in the right direction. The Committee is also right that the fees lawyers receive need to be reviewed as they currently add to unnecessary cost," he said.
However, he said that referral fee arrangements should be banned altogether and not made more transparent as the Committee had recommended. That ban should extend to all organisations receiving referral fees, not just insurers, he said.