The insurance industry called on the Government to change the law to prevent small firms being forced to close because they cannot afford to insure staff against industrial injury.

Mike Williams, chief executive of the British Insurance Brokers' Association, said after talks at the Treasury: "If we're going to deal with the problem in the long term, we have to think about the law which has been around in it's present form for about 35 years and perhaps needs looking at."

The talks followed claims soaring employer's liability insurance premiums were threatening many small and medium-sized businesses in high risk sectors such as building, transport maintenance and mining.

Firms that cannot meet the higher premium charges are faced with the prospect of carrying on without insurance, which is illegal, going out of business altogether.

Mr Williams said: "There are several hundred firms which we can identify that have either gone out of business, can't afford insurance or, I'm sorry to say, may be trading without employer's liability insurance."

He said the problem was caused by a coming together of factors, including the stockmarket crash, an increasing claims culture in the UK, court awards and claims settlements going through the roof and global insurance issues.

Employer's liability insurance was a particularly hazardous business for insurance companies.

Mr Williams said: "There are all kind of technical things one can do.

"There's pooling arrangements so that insurers share risk between them, you can go to a different type of worker's compensation system or you can cap liabilities."