Consumers may lose out under the Government's first step to reform the motor insurance industry. Regulations designed to give motorists more opportunity to shop around for cover will limit choice, according to brokers, and could cost them up to 40 per cent of their motor insurance business.

The requirement that customers receive renewal notices outlining the premium for cover and details of the no claims bonus is the first of the recommendations of the Motor Insurance Advisory Board (MIAB) inquiry into the insurance industry to be implemented by the Government.

The initial draft of the regulations recognised that the renewal notices could be sent by insurance companies or by brokers but, following legal advice, the Department of Enterprise, Trade and Employment changed the wording and dropped the intermediaries from the provisions.

Insurance companies are now notifying brokers that they will deal directly with customers on renewals. They argue that, under the wording of the regulations, the insurer and not the broker will be liable for notices that do not arrive and therefore they will have to cut the broker out of the chain.

Brokers argue that this will deprive consumers of choice. Brokers are obliged under their own new regulatory regime to offer "best advice" to customers on their options. This includes informing them of lower-cost insurance cover available elsewhere than their current insurer. The insurers have no such obligation and no interest in directing customers to better value elsewhere.

Suggestions within the industry that brokers could get around the regulations by approaching customers themselves 15 or more days before renewal drew a cool response. "That would be pitching the broker against the insurance company, possibly damaging their relationship and could also confuse the customer," said a spokesman for the Irish Brokers' Association.

"We are trying to get a solution that both we and the insurance companies can work with," he said. "Every one in the industry has subscribed to the notion of 15-day renewal notices as an exercise in transparency. The intention was to enhance the service to customers but the way it was rolled out, it works against the consumer."

Brokers say they are happy to assume legal liability for ensuring that notices reach customers the required 15 days ahead of renewal and are currently in discussions with the insurance industry, regulators and the Department. A spokesman for the Irish Insurance Federation said the industry "will, and will be seen to, carry out the recommendations of the MIAB report that relate to it'.' He said the industry was taking the issue very seriously.

The Consumers' Association of Ireland said last night that it had assumed renewals would continue to operate through brokers who had obligations to inform customers of their options. "The whole idea of this was to allow the consumer to shop around," said Mr Dermot Jewell.

"It was not the intention of the MIAB that brokers would be removed from the process when it made the recommendation on renewal notices." He said the advisory group on the implementation of the MIAB's recommendations, of which he is a member, was still sitting.

He said it would act to ensure the legislation was changed to reflect the original proposal if the insurance industry and the brokers could not agree a way forward that did not diminish customer choice.

A spokesman for the Department said it had met the insurance companies yesterday and would be meeting the Irish Brokers' Association tomorrow

"At that time, we will take a view on whether there is a need to amend the current legislation," he said.