A new motor insurance price quotation system being developed by five of the six largest insurance companies and the Irish Brokers' Association could lead to higher motor premiums for the customers of Hibernian Insurance.

However, this will depend on how brokers selling Hibernian motor insurance deal with an additional payment the insurer will make to brokers who transfer to the new system. Hibernian is the only company which is paying brokers to transfer to the new system.

A Hibernian spokesman said the payments were aimed at compensating brokers for the investment required to operate the new system and recognising the efficiency and administrative benefits to the insurers.

In addition to normal commission on private motor business, Hibernian will pay brokers who use the new Polaris Electronic Data Interchange (EDI) quotation system "a work transfer fee" of 5 per cent. Brokers using existing non-Polaris systems will get just 2.5 per cent, according to a circular from the IBA to brokers seen by The Irish Times.

But because these payments will replace existing EDI discounts which are deducted from premiums paid by customers, the cost of insurance to the customer could rise.

The distribution of the fee was a "matter for each broker" and would depend on their competitive position, the Hibernian spokesman said. Brokers could pass on all, some or none of this payment to customers.

Meanwhile Guardian, the State's largest motor insurer, has told the IBA that it will not participate in the new system. The Guardian decision is a blow because it could mean that the prices of the largest motor insurer may not be quoted on the system which would be available to brokers.

A spokesman for Guardian said it was investigating ways to meet brokers' needs using the Internet rather than the new electronic data interchange system.

IBA chief executive Mr Paul Carty said discussions with Guardian were ongoing. The companies involved in developing the new system are Hibernian, Norwich Union, Eagle Star, Allianz, Church and General and Royal & Sun Alliance. Mr Carty said Europa, Liberty and St Paul had signed on for the system while discussions were underway with Friends First, AIG and Wrightway.

The insurers and IBA set up a company, INSE-Com, to examine the development of both a "run-time" price quotations service and more advanced EDI systems for streamlining the administration of motor business. Around the same time, the IBA set up a company called BITCo, to which 250 brokers advanced £4,000 each, to examine the provision of broker administration software which would be owned by the IBA.

INSE-Com will hold the licence for the new Polaris quotations system, which will be made available to all of the back-office administration software providers on equal terms.

Quotation systems for brokers are currently supplied by two companies, Relay and Misys, as part of software packages for broker administration.

The existing suppliers contend that brokers who change to the new system will have to make significant investment in new technology. They say they are upgrading their existing services gradually so that brokers can spread the cost of new systems. They maintain that the new system cannot provide a complete price quotation service without the involvement of Guardian and all of the other companies in the market. Mr Carty rejected these arguments.

Mr Carty said the new quotations system was aimed at allowing insurers to get price changes onto the system more quickly. Current delays of up to six weeks in getting price changes onto the quotation screens in brokers offices put companies at a disadvantage to direct insurers, he maintained.

Under the new EDI system, brokers will be able to issue all documents directly to motor insurance clients without the need to pass forms and paperwork back and forth between the brokers office and insurance companies. As well as doing new business, brokers will be able to make all mid-term adjustments directly to policies and do renewals and substitutions through the EDI system. "It has huge implications for efficiency and will streamline systems," he said.