The Insurance Council of Australia has welcomed the announcement from the NSW Government on claim farming through legislation introduced to parliament last week.

According to the NSW Government the new laws aims to outlaw the deceptive practive for Compulsory Third Party (CTP) claims.

Claim farming is a predatory practice where individuals or companies target policy holders believed to have been in accidents, pressuring them to pursue compensation claims.

"No consumer should be subjected to aggressive or coercive tactics from unscrupulous operators seeking to generate insurance claims for their own benefit," Insurance Council of Australia CEO Andrew Hall said.

"The NSW Government's announcement shows strong leadership to protect consumers, while locking in the long term sustainability of the CTP scheme."

According to Mr Hall the operators undertaking claim farming often profit by selling policy holder information to law firms or other organisations.

If passed, the legislation would ban claim farming in CTP insurance, a practice that adds pressure to insurance premiums for motorists.

"More broadly, claims farming is emerging across a range of insurance lines and becoming more prevalant in motor and home insurance," Mr Hall said.

"Those responsible for claims farming will often target and exploit vulnerable individuals using coercive tactics that can be traumatic or harmful for those targeted."

The Insurance Council of Australia said it welcomes the opportunity to work with all state and territory governments on broader reforms to curb these behaviours right across the sector.

"This announcement will benefit both those directly targeted by claims farmers and all motorists who pay the price for this practice in their premiums," Mr Hall said.