UK's financial regulator, the Financial Services Authority has estimated that insurers will have to pay about £4 billion to customers who were mis-sold the payment protection insurance (PPI).

The authority has said yesterday that customers who have companied of the mis-sold PPI will have to be paid compensations mounting between £700 million and £1.2bn over five years. The authority estimated another £3billion over the time period for those customers who were mis-sold PPI but have not yet complained and said that these customers could be identified.

The FSA is set to review its redress and complains policy released last September after the industry reacted angrily. It has decided to alter some of the rules governing the sale of PPI.

The agency set a proposal that all PPI providers should review sales since 1 July, 2007 and allocates compensations for customers who were mis-sold PPI. It also asks companies to review all rejected complaints since 2005.

FSA has said that the response from the industry has been "highly critical". Various customer support groups have supported the proposals of the authority. The FSA has decided to extend the discussion for another six weeks or until April 22.

"We're disappointed the industry has responded so critically to our proposals but we remain committed to bringing about genuine, lasting change in the PPI market," said director of conduct risk at the FSA, Mr. Dan Waters.