The FSA proposals to bring Lloyd's into the Financial Services Compensation Scheme (FSCS) have been criticised by the general insurance industry.

The ABI, which has written to the FSA about the proposal, said it would be "unacceptable" to expect general insurers to foot the bill for failures at Lloyd's.

Under the proposal, the FSCS would act as a last resort if the Lloyd's Central Fund could not finance claims if a Lloyd's syndicate became insolvent.

The FSA makes the proposal in its latest consultation paper; CP177: Lloyd's policyholders: Review of compensation arrangements.

Under current regulation, Lloyd's must operate its Central Fund to provide protection equivalent to that offered by the FSCS.

Lloyd's director and general counsel Sean McGovern said: "Lloyd's has always sought to ensure that valid policyholder claims are paid in full."

In 1999, the FSA decided not to include Lloyd's policyholders in the FSCS. But it said it would keep the situation under review, and has concluded that bringing Lloyd's into the FSCS is required to put Lloyd's policyholders on "the same footing" as holders of other UK insurance policies.

The FSA is concerned about more than one million UK consumers who have their cars insured through Lloyd's,.

Responses to CP177 are due by 11 July.