Litigation costs added an average of more than 40 per cent to the cost of insurance compensation claims, the Tánaiste told the Seanad.
Ms Harney said this had contributed to the high cost of insurance in the State and to the cost of claims against the growing self-insured sector, including the State itself.
"These costs are a threat to the health of the Irish economy, to job security and to our competitiveness in an enlarged European market," the Tánaiste said.
She was introducing the Personal Injuries Assessment Board (PIAB), describing it as one of the central aspects of the Government's insurance reform programme. "Its objective is to tackle the delivery cost of speedier compensation to genuine claimants while reducing the cost of insurance for consumers and businesses alike," she said.
By eliminating the need for litigation costs, where legal issues were not in dispute, the PIAB would significantly reduce the cost of delivering compensation to the benefit of all consumers.
In the current legal system, she added, less than 10 per cent of claims reached an oral hearing in court, and the 90 per cent settled without a trial were considered to carry an excessive litigation overhead.
"The objective of the PIAB is to assess compensation at current levels, but to do so more expediently while eliminating the excessive litigation overhead. It is not being set up to cut the level of awards to genuine claimants."
Giving a "general welcome" to the Bill, Mr Paul Coghlan (FG) said high insurance costs had been the bane of consumer and business life in Ireland since 1989.
He added that as a member of the Oireachtas Committee on Enterprise and Small Business he had heard at first-hand "the harrowing testimony" of business people who had had to curtail their plans, or cease trading directly, because of insurance increases being forced through.
