Motorists will save less than €6 a year on average from the halving of the motor insurance levy from the new year.
The decision to cut the levy from 2 per cent to 1 per cent was announced by Minister for Finance Michael McGrath on budget day. The Minister this week signed the legal order activating the measure.
The levy, which is imposed on each policy of insurance, was introduced in 2018 as the State sought to build a €200 million fund to cover third-party claims where an insurer is insolvent.
“Given the current strong financial position of the fund, I am pleased to sign the order confirming a reduction in the levy from 2 per cent to 1 per cent,” said Mr McGrath.
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The move will save insurance companies about €20 million next year, he said, “and in turn have a direct impact on the cost of insurance for motorists”.
Minister of State for Insurance Jennifer Carroll MacNeill said motor premiums have fallen by more than 40 per cent on average since 2016.
Hazel Rock, head of insurance services at Brokers Ireland, said the average motor premium last year was €585 according to the National Claims Information Database of the Central Bank. There were 2,192,55 private motor insurance policies in 2021.
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If the one percentage point reduction was applied evenly to all premiums, that would mean a reduction of close to €6 on an annual premium, she said, adding that “ultimately this will be a decision for each motor insurer”.
She said it was difficult to say how quickly insurance companies would respond to the reduction in the levy. “However, there is good competition in the motor market, as opposed to other areas of insurance such as public and employer liability, so that is likely to be an influencing factor,” she said.
“Obviously insurance brokers will be factoring in the reduction in the compensation fund levy as part of their negotiations with insurers on behalf of motorists, along with other factors,” she added.
