Fears that the UK is being consumed by a compensation culture are unfounded, a report claimed today.

A study from market analyst Datamonitor found that the number of cliams in recent years had actually fallen.

But the perception that society is becoming increasing litigious is having serious ramifications for the industry, the report said.

"The level of media coverage that surrounds personal injuries claims has created a myth about the rise in their numbers, and there certainly is a degree of sensationalism about it, but the underlying trend is that claims numbers are falling," said David Stephenson, financial services analyst at Datamonitor and author of the report.

"Since the demise of The Accident Group (TAG) and Claims Direct, there has been a definite contraction in the number of spurious claims being submitted to insurers."

However, escalating legal fees and advances in medical science have pushed up the cost of claims by almost 10% to an estimated £7.2 billion in 2004 alone, and Datamonitor forecasts costs will increase by 40%, to £10 billion in 2009.