The Competition Commission wants firms to have to wait 14 days after a customer has taken out a loan or credit card with them before they can contact them about buying PPI.
It said the delay would enable people to compare different products, and would also address the current advantage that providers who sell the cover alongside credit agreements have, increasing competition in the market.
Consumers will still be able to pro-actively contact the firm they took out credit with to buy a PPI policy within 24 hours.
The commission is also proposing a ban on the sale of single premium PPI policies, in which the cost for the entire term of the policy is paid upfront and usually added to the debt being taken out.
It said the structure of this product made it difficult for consumer to switch provider and shop around to compare deals.
Other proposals put forward by the commission to increase competition in the market include requiring PPI providers to give consumers a personal quote, clearly setting out the cost of the policy, both on its own and when added to the credit agreement.
If this quote is not given when the original credit agreement is taken out, the firm must give it to the consumer when they re-contact them and them wait for 14 days before they can sell them a policy.
But the commission stopped short of introducing a temporary price cap on the cost of the cover, which it said it was considering doing earlier this year.
PPI covers debt repayments if the holder is unable to work due to an accident or illness or if they lose their job.
It has been the subject of controversy in recent years after consumer groups complained it was being mis-sold to people who would never be able to claim on it.
The vast majority of the more than 13 million PPI policies in force were sold at the same time as the policyholder took out a credit card or loan.
The commission found that many people were unaware they could buy PPI from other providers, while comparing prices was difficult due to the complexity of the product.
The commission also found that there was a belief among consumers that buying PPI increased their chance of getting a loan, and the cover was often bundled up into a credit agreement, making it difficult for other providers to gain a foothold in the market, enabling existing ones to charge high prices.
In some cases people even claimed they had been unaware that they were buying the product at all.
In today's report the commission also called for PPI firms to provide certain information in adverts, including the price of their cover expressed in a common format of the cost per £100 worth of monthly benefits.
Distributors must also state that PPI is optional and available from other providers, while they must also advertise cover for personal loans and second charge mortgages alongside their adverts for these products.
The commission is also calling for PPI firms to provide customers with annual statements to encourage people to review their policies and decide whether to switch.
They will also have to provide certain information on the policies to City watchdog the Financial Services Authority, which the commission would like it to use in its comparison tables for consumers.
The proposed remedies have been published so that interested parties can comment on them, before the Commission publishes its final report in mid-January outlining the measures that will be introduced.
A 16-month investigation carried out by the Commission, which reported earlier this year, found that consumers were being overcharged for PPI by £1.4 billion annually due to a lack of competition in the market.
It blamed the situation on the way the cover was typically sold alongside credit agreements.
The review also found evidence that the high price of PPI was being used to cross-subsidise the interest rates on personal loans offered by some providers.
But trade bodies representing groups that sell the cover reacted angrily to the report.
The proposals are also likely to be bad news for the struggling banking sector, with sales of the cover currently generating revenues of £5 billion a year for the banks.
The British Bankers' Association said: "This is very bad news for customers. Coming on the heels of news of two million unemployed, it is totally without conscience to encourage people to borrow without back-up.
"The Competition Commission has gone well beyond its remit and the evidence it has which shows customers will only consider taking cover when they borrow and not afterwards.
"This is an irresponsible decision exposing vulnerable customers to economic difficulty when they may need help most."
The Association of British Insurers warned that the proposals would "kill the PPI market" and leave millions of consumers unprotected.
Nick Starling, the ABI's director of general insurance and health, said: "This is devastating news for consumers. By effectively denying consumers PPI in the very economic climate that they need it most, the Competition Commission has got this completely wrong.
"Unemployment claims on PPI policies have grown by 69% in the last 12 months, showing just how valuable this cover is proving to be.
"The Competition Commission still has the opportunity to rethink its proposals before publishing its final report in January. It is essential that it does so."
Stephen Sklaroff, director general of the Finance and Leasing Association, said: "Preventing customers from buying PPI when they take out new credit will mean that many vulnerable people go unprotected just when unemployment is rising sharply.
"The loss of single-premium PPI will also result in worse terms for many customers.
"The Commission's proposals, which will raise the cost of credit, have ignored the Prime Minister's concerns about rising interest rates. We call on the Commission, even at this late stage, to reconsider."
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