The National Specialist Contractors Council called for a review of employer's liability legislation, insurance premium tax and the costs of the legal fees involved in claims.
Insurance premium tax now stands at 5% and up to 40% of the cost of each insurance claim goes on legal fees.
Suzannah Nichol, chief executive of the council, sent a letter to the DTI in which she called for the review. She also enclosed the findings of a survey of members, which revealed that the average employer's liability premium had risen 150%.
Nichol said the situation was beginning to get desperate and it was time for the government to act.
She said insurance underwriters were demanding excessive premiums even though NSCC members had showed that they were competent and had good safety records.
"Contractors are being ignored by underwriters and people are getting desperate; the situation is beginning to affect livelihoods."
She added that many firms were receiving a few days' notice to renew their policies when they were half way through their cover periods. Companies were then confronted with a choice between paying huge increases or breaking the law by operating without cover.
People are getting desperate; it is affecting livelihoods
Suzannah Nichol, NSCC
The Association of British Insurers has set up a working group to tackle the problem but construction industry leaders suspect that the issue is still being ignored by underwriters.
The first meeting of this working group was held two weeks ago.
Bill Jenkins, director of NSCC member trade group the Flat Roofing Association, claimed that insurance underwriters were arrogant.
He said the difficulty was that the market was dominated by the small number of underwriters who were willing to take on cover for construction firms. Many others had pulled out of the market on the grounds that it was too risky.
Jenkins said: "The Association of British Insurers has given us advice on how to help resolve the situation, such as proving safety competence and getting insurance through trade association affiliation, but this is being ignored."
The RICS warned that its members are struggling to find professional indemnity cover.