MILLIONS of people will be covered by new rules on insurance policies from Friday, when the Financial Services Authority (FSA), the City watchdog, takes over the regulation of the industry.

But consumer groups have warned that there are big gaps in the regime, which could leave people vulnerable to mis- selling. For example, insurance sold by travel agents will not be covered. Also, life and critical-illness insurance will be subject to the same rules as car and home policies — even though the former are more complex.

Mike Naylor of Which? said: “We would have preferred life, critical-illness and income-protection policies to be classified separately because they carry a much higher risk of mis-selling.”

Businesses have also warned that the new regulations will add to their costs. Lifesearch, a broker, believes they could force life and critical-illness premiums up by 10% to 20% over the next 12 months.

Here, we answer your questions on the new regime.

What will be covered by the new rules?

Most general insurance will come under the auspices of the FSA from January 14, including motor, home and some travel insurance.

Private medical insurance and protection policies, including life, critical-illness and payment-protection insurance, will also be covered. Critical illness pays a lump sum if you are diagnosed with one of a list of diseases; payment-protection insurance covers your loan repayments if you are unable to work due to an accident, sickness or unemployment.

Extended warranties will also come under the new regime. Car dealers, for example, will not be able to sell breakdown warranties unless they are registered with the FSA or as an agent of an approved insurer.

What is not covered?

If you buy travel insurance from an agent, it will not be covered by the new regime. However, travel insurance bought separately will come under the remit of the FSA.

About two-thirds of people buy holiday cover from travel agents, even though the policies are often poor value.

For example, a family of four travelling to Spain for two weeks would pay £158 for insurance from Thomson, the tour operator, compared with just £22.06 if they bought cover from TMSM Travel Insurance, according to Insuresupermarket.com, a comparison website.