Mike Slack, the chairman of the Association of Insurance Intermediaries and Brokers (AIIB), warns that high-ranking Treasury officials are worried about the lack of progress on resolving general insurance regulation.

“The hovering threat of imposed regulation by Whitehall could not have been made more manifest this week when the Treasury hinted that if the general insurance industry could not get its house in order and embrace the GISC, then an FSA-imposed regulation route could still happen,” he said.

“In other words, the Sword of Damocles still hangs over us!”

Slack calculates that a one-man band intermediary could expect to pay between £31,500 and £32,000 each year in compliance fees under Financial Services Authority (FSA) regulation, excluding the additional manpower needed to cope with increased paperwork.

For a medium-sized company, fees could increase to a staggering £310,000 a year plus the likely need to take on a full-time “compliance officer”.

A Treasury spokesperson reiterated that strong self-regulation was the preferred option of the government.