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In its provisional findings in a report published today (5 June), the commission found that the vast majority of the UK’s more than 14 million PPI policies were sold at the same time as the consumer took out a loan, with many unaware that they could buy PPI from other providers.

As a result, the Competition Commission said there was no competitive pressure and the banks, mortgage providers and credit card providers were able to charge higher prices.

Inquiry chairman and Competition Commission deputy chairman Peter Davis said: "We’ve found serious problems with the PPI market and customers are paying for the lack of competition.

"The way PPI is sold as an 'add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.

"Distributors don’t appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other."

In its report, the Competition Commission has also published a range of measures aimed at increasing competition in the PPI market to improve the information to customers about what they are buying and to make it easier to switch between providers.

The measures could include a possible prohibition on selling single-premium policies, an outright ban on the sale of PPI at the same time as the associated credit product, or even a cap on the prices charged.

Davis added: "Many customers aren’t aware that they can get PPI elsewhere, potentially for less and equally others believe that buying PPI from the provider increases their chance of getting a loan."

The findings, however, have not pleased the British Banking Association (BBA), which has said that the proposals need careful consideration.

Angela Knight, chief executive of the BBA, said: "There are some issues that concern us and we shall respond to the discussion document explaining what those concerns are. It's important that customers don't end up finding themselves worse off as a result of unintended consequences.

"The report and discussion document provide some useful food for thought but if some of the recommendations are adopted, it could leave customers exposed just as economic conditions are worsening," she warned.