First rule, never believe anything an insurer tells you. Second rule, never let an insurer persuade you to do anything. If they are trying to persuade you, it is for their benefit not yours. What do you pay your insurance for? So they can defend you against any claim made against you. And can claim on your behalf when you are the injured party. Why would you not want them to do what you have paid them for?

Now that you are this far down the line, if your wife has advised you to drop the case and you have, you have then completely compromised yourself. It would be very rare that you wife would need to go to court and take the stand, it would be the insurer's solicitor doing that. The only way you can fight this is by standing for your rights. If this was a non fault accident, then you have had a "tort" committed against you, then you need to stand up and fight for your rights. If you do not, you will continue to endure the situation you are in now with premiums for the next five years. What do you have to gain by going to court? Your no claims bonus, your driving history, your excess, your right to settlement, compensation and reduced premiums.

If the other driver admits liability your policy will be resumed, your no claims bonus will be re-instated and I would then claim for any increase in premium for the next 5 years as a result of the accident from the at fault party. It massively affects the outcome.

If your wife feels the accident is not her fault, she needs to say so very clearly to her insurer, advise her to say " I do not consent to you as my insurer accepting liability in any way, I find the other party wholly liable for the incident, and wish for you to pursue my lawful losses in full".