The Government removed the rules setting the maximum level of commission that insurance companies can pay brokers selling general insurance because it believed they created an artificial market and were anti-competitive.
The rules, which set the maximum level of commission that could be paid on motor, employer and personal liability and household insurance, were lifted from October 1st by the Minister of State for Enterprise and Employment, Mr Noel Treacy.
The move has come in for criticism, with fears that it could push up the already escalating cost of motor insurance in particular.
Some observers have also expressed concern that some unscrupulous brokers would sell on the basis of what commission could be earned rather than the best product for the consumer.
But a spokesman for Mr Treacy said yesterday that the Government believed the rules, which were introduced in 1989, were anachronistic. "Market forces were not given a chance to take effect," he said.
The Government also feared the controls on non-life commissions could be appealed on anti-competition grounds to the EU, which could lead to retrospective pay-outs by insurers to brokers, driving premiums higher.
The spokesman said the Irish market was now open to competition from insurers based overseas but there were indications that companies were reluctant to enter the market if they could not remunerate distributors as they wished.
In addition, legal advice suggested brokers could not at present be prevented from charging fees on top of the commission, defeating the original purpose of the rules.
Responding to criticism that the Government had lifted the controls without introducing any requirement for disclosure of general insurance commissions, the spokesman said the Insurance Bill, which should be published before the end of the year, dealt with this issue. It contains provisions for transparency in pricing in relation to both life and non-life insurers.
"There was no good time to lift those caps but it should give a stimulus to the introduction of transparency," he said.
