The FSA is turning its spotlight on reckless underwriters who are fuelling the soft market.
Over the coming months the regulator will ask a sample of insurers to show how they set premiums.
David Strachan, insurance sector leader at the FSA said: "We will be undertaking specific research to check there is a clear board policy on underwriting and that systems and controls are in place to monitor adequately that pricing is consistent with this policy."
The probe will look at whether insurers are writing business too cheaply, have insufficient capital or poor underwriting controls and whether communication between boardroom managers and underwriters at the sharp end is failing.
An FSA spokesman said he was unable to name the underwriters being targeted. "We don't want to see people chasing down the cycle."
The FSA will report back on its findings by the end of the year.
One broker commented: "Anything that the FSA can do to flatten the market cycle is to be commended."
FSA perimeter team crackdown underwa
The regulator is cracking down on illegal brokers and secondary intermediaries with its "perimeter team" hit squad visiting various parts of the UK.
The FSA said its team had already seen over 500 firms which were selected based on FSA information and from leads generated by concerned members of the industry and public.
Steve White, Biba's regulation and compliance manager, said: "We are 100% behind these visits. Brokers have been warned about them and have had time to adjust to the rules."