Described as “one of the largest” programmes the financial watchdog has undertaken, the work will build on previous programmes conducted in 2005 and 2006.
The investigation will include mystery shopping exercises in its aim to ensure sales of the product are carried out fairly and transparently.
Clive Briault, managing director of retail markets at the FSA, commented: “Improving sales standards in the PPI market remains a key priority for us and we see it as an indicator of whether firms are treating their customers fairly.
“Customers should come away from the sale having been given the best possible chance of understanding that PPI is almost always optional, what the policy will and will not cover, and how much it costs.”
PPI is used to cover repayments if a person cannot meet them because they lose their job or fall ill.
Banks and building societies have been described as profiting from PPI in particular by consumer groups, who also state that they are little more than a “protection racket”.
Three firms were recently fined by the FSA for their conduct with respect to sales of PPI.