The letter, which has been sent to chief executives, follows the decision last month by a number of major banks to step selling the insurance.
Some of these firms, along with other market players, now offer or plan to offer regular premium PPI instead of a single premium product.
The letter from Jon Pain, the FSA’s managing director of retail markets, reminds firms that the Competition Commission’s final report on its PPI market inquiry, published on 29 January, included a remedy that prohibits the sale of single premium PPI policies after 1 October 2010.
It adds ““We recognise the severity of the current economic climate and the financial problems many consumers are facing.
“Moreover, we believe that PPI can play an important and legitimate role to cover repayments on specific credit agreements for consumers facing job loss, or other issues at this difficult time. However, our focus remains on how this product has been, and continues to be, sold and whether consumers have been treated fairly during the sales process.
“We therefore request that if your firm has not already done so, it stops selling single premium PPI with unsecured personal loans as soon as possible and in any event by 29 May 2009.
“In view of our ongoing concerns across the single premium market over the standard of sales, we believe this request is justified to bring an orderly withdrawal of single premium PPI from the market.”
The letter asks for a written response to the request to withdraw SP PPI UPL to be sent to the FSA by 31 March 2009.