The insurer, which RSA bought in July 2010, said it started refunding customers last week and expects to complete the process at the end of this week.
In addition to the refund due, 123.ie is paying an additional 5% in compensation.
123.ie, said that the average refund was €80 (£64). The company said it had identified the error and notified its regulator, the Central Bank of Ireland, in October 2015.
It added that it then began immediately to identify the affected customers and determine how much they were due.
The company said in a statement: “123.ie can confirm that it is currently refunding customers to correct a charging error that effected some motor premiums.
“The error related to some of the vehicle history information, it was technical in nature and the company has taken steps to ensure that it doesn’t recur.”