The review by the Financial Conduct Authority (FCA), which is to begin this summer, will include pensions, endowments, investment bonds and life insurance and cover 30 million policies sold between the 1970s and 2000.
It follows concern that loyal policyholders are not being given the same priority as new customers and instead face high exit fees.
In a session when the FTSE 100 Index rallied 34 points to 6622.5 in early trading, insurance-based stocks occupied the first six places on the blue-chip fallers board.
The move is a fresh blow for the industry just a week after the Chancellor gave pensioners the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.
Friends Life insurer Resolution, which was set up in 2008 to consolidate the life insurance industry, slumped 11% or 38.3p to 280.7p. Aviva fell 31.5p to 451.95p, Legal & General dropped 10.3p to 202.05p and Standard Life eased 10p to 376.35p.
Phoenix Holdings, which has five million policyholders and is the UK's largest consolidator of closed life assurance funds, was down 47p to 690p in the FTSE 250 Index.