The Insurance Compensation Fund levy is to go from 2pc to 1pc from the start of next January.
It is known as the Quinn Levy as it was put in place to cover the losses incurred by the collapse of Seán Quinn’s insurance empire, where appropriate cash reserves were not maintained.
This marks the first change in the levy in 14 years, according to the Central Bank of Ireland, which administers the levy.
The reduction is estimated to reduce the amount collected by the levy by around €57m across the whole sector.
Central Bank figure put the average motor premium for last year at €616. A 1pc reduction would equate to around €6 for consumers.
Tánaiste and Minister for Finance Simon Harris called on insurers to pass on the reduction to consumers.
He said: “The Insurance Compensation Fund is an important protection mechanism for Irish policyholders.
“It ensures that in the event of an insurer going into liquidation, outstanding claims can still be funded.”
Mr Harris said that since 2011, the Exchequer has advanced approximately €1bn to the Insurance Compensation Fund.
“However, I am pleased that the balance of the advances from the Exchequer has reached a level where the levy can now be reduced from 2pc to 1pc.
“This reduction will benefit approximately 2.3 million private motor insurance policies and 1.3 million home insurance policies on renewal in January 2026.”
He said the reduction in the annual percentage rate will reduce the level of motor insurance contributions by approximately €57m in the new year.
“This will have a direct and positive impact on the cost of insurance and the onus is now on insurers to pass on this reduction to consumers.”
The levy covers the cost of claims in the State where an insurer goes into liquidation and is applied to home, motor and other general insurance products.
The fund is collected by the Revenue Commissioners and used to pay compensation to consumers for claims on failed insurance firms.
Last year the Government decided to reduce the Motor Insurers Insolvency Compensation Fund levy from 1pc to 0pc, a move that came into effect at the start of the year.
The Motor Insurers Insolvency Compensation Fund is designed to cover outstanding claims in the event of a motor insurer going into liquidation.