Workers are taking more legal action against their employers, pushing up insurance premiums and creating a "have-a-go" culture for others, according to the Confederation of British Industry (CBI).
The employers' organisation has called for urgent reform of the business insurance sector, which it claims is reaching unsustainable levels.
The CBI said insurance premiums for UK firms have risen almost 50% in the last year.
It blames an increase in the actual number of claims being made, together with a rise in the pay-out being awarded to claimants by the courts.
"One of the biggest issues is that people are more aware of their rights and more willing to take legal action," said Digby Jones, director general of the CBI.
The CBI also blamed the falling stock markets and a rise in the types of industrial diseases.
It is now urging the government to make claimants pay more of the costs if they lose a compensation case.
It also wants the government to pass on some of the £300m it acquires from insurance premium tax to businesses.
The cost of disaster
The CBI said the problem had been exacerbated by the slump in share values.
This means the insurance industry can no longer offset a rise in costs against the value of its investments on the stock market.
And the problem is made worse because the sector is still struggling to pay-off the price of September 11 which cost insurers an estimated £46bn.
The CBI also wants to link insurance premiums to a company's track record in health and safety issues.
It said the government should consider the idea that the public sector should pay for claims relating to ongoing industrial diseases such as asbestos.
A number of insurers, including Royal & Sun Alliance and Lloyds have been hit by a run of asbestos-related claims which have threatened to leave firms with billion pound bills.