A state fund will cover the estimated €40m shortfall owed to motorists following the collapse of Setanta Insurance.
Some 1,600 people with claims against the Maltese insurer have been left out of pocket as there is not enough funding left in the collapsed company to pay the claims.
Finance Minister Paschal Donohoe said State-collected funds would now be used to foot the bill for the shortfall.
Setanta Insurance was placed into liquidation in 2014, which led to a long-running court case.
The Supreme Court eventually found that the State's Insurance Compensation Fund was liable for third-party motor claims.
That judgment meant that the Insurance Compensation Fund had to pay up to 65pc of any claim, or €825,000, whichever was the lower figure.
But this left a shortfall to be paid from what was left from the liquidation. The liquidators said they did not have sufficient funds to meet all of the outstanding amounts.
Mr Donohoe has now said that the State will step in.
"I have carefully considered the matter including recent legal advice I have received, plus an update from the liquidator, and on the basis of this I have come to the conclusion that if the State steps in to pay the 35pc shortfall, it should be able to recover the bulk of what the third-party claimants themselves would have received from the liquidator," he said.
This decision also applies to the collapse of Gibraltar-based Enterprise Insurance, which affected around 14,000 motorists.
The estimated cost will be between €35m to €45m, to be financed from the ongoing 2pc Insurance Compensation Fund levy in place to recover money owed from the Quinn administration.
This meant it was unlikely that any Exchequer financing would be required, the Department of Finance said.