The Office of Fair Trading (OFT) is to launch an inquiry into payment protection insurance (PPI).
The consumer watchdog said the inquiry would begin in early 2006, in response to a super complaint made by the Citizens Advice Bureau earlier this year. This comes a month after the FSA told firms selling PPI they must improve standards or face fines.
The OFT highlighted a "number of issues" which raised concerns about the £5.4bn-a-year market. The four key concerns were: a lack of transparency, high costs and barriers to entry for independent PPI companies, wide disproportions in the pricing of policies, and the massive profit margins of companies selling PPI products.
John Fingleton, OFT chief executive, said: "PPI is a complex product, often bought almost as an afterthought.
"Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean they are less likely to shop around for PPI."
The FSA has said compliance standards in the sector are "generally weak".
But law firm Reynolds Porter Chamberlain said the regulator's call to ensure customers are eligible to claim on PPI policies could drive up the cost of cover and reduce consumer choice.
It added that it believed the FSA was in danger of blurring the border between advised and non-advised sales.
