An investigation into the sale of travel insurance with package holidays has been launched by the Treasury.
A bad holiday gets worse if the insurance doesn't cover problems
Consumer groups have raised concerns that this type of travel cover is over-priced, being mis-sold or policies contain too many get-out clauses.
Travel insurance sold as a bolt-on to a holiday is unregulated, but the sale of stand-alone cover is regulated by the Financial Services Authority (FSA).
The review may lead to FSA regulation of the whole travel insurance industry.
Ed Balls, the Economic Secretary to the Treasury, made the announcement that the review of the industry had started at a meeting with the influential Treasury Select Committee.
Mr Balls announcement was followed by a Treasury statement, which said the review would start with a call for evidence and widespread consultation.
Mr Balls said the review was in response to public concerns about travel cover sold along with a package holiday.
"In recent years there have been growing concerns from consumer groups and sections of the industry that the market is not working as well as it could, raising questions about whether regulation and appropriate redress should apply to the selling of travel insurance," he said.
"We therefore need to get to the bottom of whether travel insurance sold with a holiday is being mis-sold, and whether we need to be doing more to educate consumers to consider the cover they want and ensure that they are properly informed."
The government last looked at the issue of travel insurance in 2003 but decided against imposing regulation because of concern over the impact on the cost of package holidays.
It also shied away from regulation because travel agents insisted their own industry code was providing sufficient consumer protection, the Treasury said.
The travel insurance sector will be worth more than £650m in 2006, Treasury analysts have said.