Speaking at the New Solutions in Motor Claims and Accident Repair conference, Baker said between six and seven pence in every pound claimed on insurance in the UK is now spent on credit hire.
Under the General Terms of Agreement, insurers are now paying tens of millions of pounds each year in penalties for missed payments, he added.
The average time to settle a claim is now 180 days, representing unnecessary cost for an industry with shrinking margins.
Premium prices are a big issue for insurers. Aggregator sites, such as Money Supermarket and Confused.com, now account for around 30% of new business and are growing in popularity.
According to a survey by LV, 70% of customers on these sites will click through on the cheapest quote, dropping to less than 1% for companies outside the top three.
Although this allows smaller insurers to increase their market share for a small investment, it has created a sales environment where most consumers are interested in cost over brand, which could further depress margins.