The Association of British Insurers (ABI) has written to U.K. Finance Minister George Osborne requesting an independent investigation into the City regulator's handling of its planned industry review.
The U.K.'s Financial Conduct Authority (FCA) was left reeling on Friday after news of its massive life insurance investigation led to hundreds of millions of pounds being wiped off the shares of Britain's major insurance companies.
(Read more: UK watchdog to probe £150bn insurance policies)
The City regulator was criticized over its handling of the story. In an interview with The Telegraph published Friday, a senior member of the FCA said it was to investigate 30 million life insurance policies worth £150 billion ($249 billion) sold over the last four decades, to see whether so-called zombie funds were being responsibly managed.
The FCA stated it wanted to investigate whether firms were regularly reviewing older products to ensure they were fulfilling their intended purpose. However it later clarified that it would not individually review 30 million policies and did not intend to look at removing exit fees from these policies.
Following the news, insurance stocks in the U.K like Legal & General and Aviva fell by 3.5 and 2.75 percent respectively on Friday, although the ended the day off earlier losses thanks to a clarification from the FCA.
While the FCA said that its board would conduct an investigation into the handling of the issue involving an external law firm, the ABI has called for a completely independent review.
"The ABI has written to the Chancellor. The events of last week were very serious and we believe the investigation into the regulator needs to be completely independent, the regulator cannot investigate itself," the association said in a statement.
"To ensure consumers and investors are confident in the long term savings market, we're suggesting that government, industry and regulators need to sit down and have a longer term dialogue about how we can work together in future."
(Read more: Insurers demand City watchdog's head after 'blunder')
The ABI statement said that it did not want "heads to roll," but stressed that lessons needed to be learned.
On Monday, many insurers were calling for the FCA's head, Martin Wheatley, to step down over the way the authority handled the release of the information about the proposed review.
The U.K. Parliament's Treasury Committee Chairman Andrew Tyrie was quoted as saying the FCA's actions on Friday were an "extraordinary blunder."