Government officials are to hold talks with the insurance industry amid warnings some firms cannot afford to insure staff against industrial injury.

The talks follow claims that soaring employer's liability insurance premiums are threatening to bankrupt many small and medium businesses in high risk sectors such as building, transport maintenance and mining.

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

The National Federation of Builders has already warned problems in obtaining insurance cover could bring work on some public sector construction projects, such as schools and hospitals, to a halt.

The difficulties were expected to feature on the agenda at tomorrow's meeting between the British Insurance Brokers Association and officials from the Treasury and the Department for Work and Pensions.

A Treasury spokesman said they were aware of the problems and were monitoring the situation closely but played down the prospects of Government intervention.

He said: "The Government does not generally intervene in the terms and conditions of insurance policies. A competitive market is best way to ensure a good deal for consumers.

"Insurers have been paying out increasing amounts in claims over recent years, and making underwriting losses on employer's liability, so it was inevitable that premiums would go up."

Employer's liability insurance has already cost the insurance industry millions of pounds in pay-outs for industrial injuries and illnesses such as vibration white finger and asbestosis.