Tanaiste Mary Harney says her officials are consulting the EU over the consequences for Irish companies of the collapse of the English company Independent Insurance.
She told the Dail there were consumer protection policies in England but they did not apply to Irish customers of that company.
Under EU law, she said, countries could not discriminate in favour of their own citizens.
The Irish small and medium enterprises associaton (ISME) is disappointed at what is describes as the 'Tanaiste's rejection of the insurance compensation fund'.
The association has urged the Tanaiste to 'reconsider her position and demonstrate her understanding of small companies badly stung because of the current difficulties in the insurance market'.
ISME said it was not seeking to have the taxpayer subsidise insurance losses, but requests that the portion of the 2% insurance levy now be used to support businesses damaged by the collapse of the insurance group.
The Tanaiste says she is examining what might happen to a surplus of £18m from the insurance fund set up by the State to rescue PMPA.
She says her officials will look at hardship cases that may arise from the collapse of Independent, but there can be no question of the taxpayer picking up the bill for the closure.
The Fine Gael leader Michael Noonan said companies that had been insured with Independent now had no protection, if a court award were made against them.
That could lead to the closure of Irish companies. He also asked if the company now building the Luas line has been insured by this company.