The government's decision to exclude extended warranties from FSA regulation is a missed opportunity to improve consumer protection, said the ABI.
It said the decision would create uneven protection for consumers.
The ABI's head of market regulation and specialist lines Chris Hannant said: "This decision falls short of giving customers the reassurance they need. Exempting insured warranties from FSA regulation is inconsistent with the approach for other general insurance products.
"Exempting service backed warranties means that customers will not have statutory protection against company insolvency or recourse to the Financial Ombudsman.
"This `two-tier' approach is not in the interests of consumers."
