The GISC criticised the FSA in its response to consultation paper CP160 for offering reforms that fall short of good business practice.
GISC said in a letter: "GISC is concerned that the current proposals will not only fail to drive behaviour towards good practice, but indeed are likely to impair standards already in place.
"The proposed standards set a duty of care significantly below that currently regarded as good practice."
The regulator picked holes in a number of the proposals. GISC is not in favour of the proposed three categories of sale, but prefers two distinct selling processes - interactive, advised and non-interactive, non-advised - which it claimed are simpler and better fit customers' expectations.
The GISC also disagreed with the FSA's statement that private medical insurance (PMI) has a "higher risk of consumer detriment" than other insurance products.
It said: "GISC does not support the proposal to introduce in the longer term an approved examination for those advising on private medical insurance."
The GISC said PMI should be sold only on an advised basis, "except in the very rare cases where it is concluded on an execution-only basis".
Loss adjusters and claims handling outsourcing firms must be included in any regulatory regime, according to the GISC.
The proposal that insurers will be ultimately responsible for claims handling, would present intermediaries with a conflict of interest and open up the "possibility of insurers exercising undue influence on the claims process," GISC said.
An FSA spokesman said: "We are gathering responses at the moment from all parts of the industry and will then analyse each one on its own merits.
"We will respond later in the year."
