Motor insurance costs could fall by up to 10 per cent this year, according to the Automobile Association (AA).

Mr Conor Faughnan, public affairs manager of the AA, told the Joint Committee on Enterprise and Small Business, that AA surveys show that the average premium for the 80 per cent of drivers who are outside high-risk categories had dropped to €584 in October last year from €785 in April 2003, a fall of 26 per cent.

Mr Faughnan said that the trend was continuing into this year, when he predicted a 7-10 per cent fall in costs.

However, he warned that consumers should be sceptical about insurers offering discounts to drivers with no penalty points.

"Often these discounts are not truly genuine, but merely reflect the fact that premia are falling across the board," he said. "What is described as a discount is merely a market-typical price."

Mr Faughnan pointed out that, while motor insurance costs have fallen, they were still too high. He said that Irish people continued to have more accidents, litigate more frequently and compensate more generously than their counterparts elsewhere in Europe.

He also said that young male drivers continued to be penalised because they continued to have more accidents than any other category of motorist.

"If this is a problem that you want to solve, then the way to do that is by starting with the road safety problem," he said.

Government attempts to cut the cost of insurance through a series of reforms that were set back last week when the High Court ruled that the Personal Injuries Assessment Board (PIAB) would have to deal directly with claimant's solicitors.

The board, which determines awards in motor and workplace injury claims where liability is not contested, was designed to limit the role of lawyers in these cases. However, claimants will still have to pay for their legal advice from their awards.

Mr Faughnan said he believed that major UK and possibly European insurers were interested in entering the Republic's market.

"I am aware broadly that there are conversations being had with British and European insurers with a view to having them operate in this market," he said. However, he could not name the companies involved.

He told the committee that the State's historically volatile insurance market, and a lack of local knowledge, had effectively barred international insurers from doing business in the Republic.