A lack of available data on insurance schemes had made it difficult to determine how long it was taking for tenants to receive their deposits back, the Government said, but it added it believed it was longer on average compared to custodial schemes.
It is understood that the changes will come into effect next April.
Dan Wilson Craw, of tenant campaign group Generation Rent, said: “Part of the problem with insurance schemes is that they don’t have that visibility of what happens to the money.”
Currently, the three main schemes are the Deposit Protection Scheme, MyDeposits, and the Tenancy Deposit Scheme. When money is held in a scheme, it is typically returned to tenants directly at the end of a tenancy.
Landlords who fail to follow the rules on protecting tenants’ money can be ordered to pay up to three times the deposit amount in compensation on top of the original sum.
The Ministry of Housing, Communities and Local Government (MHCLG) advertised a seven-year procurement contract in March, which advertised for one company to run a single custodial-only deposit scheme, to replace the current three main schemes.
The scheme will share its profits with the MHCLG, the advert stated.
Questions also remain over what happens to the interest paid on the approximately £5bn held in tenancy deposits.
Generation Rent said that this could amount to hundreds of millions of pounds of interest every year. Mr Wilson Craw added: “Tenants should be getting some of the benefit of that.”
The three existing deposit schemes paid between 0.7pc and 1.44pc in interest in June. The average rate on an easy-access savings account was 2.53pc in the same period, according to financial analysts Moneyfacts.
The Telegraph also understands that deposit “passporting” – where deposits are kept in the scheme across different tenancies – alongside whether tenants should be able to access the interest to fund legal action against their landlords are among the proposals being considered.