Carphone fined £245,000 over insurance breaches

Carphone Warehouse has been ordered to pay a fine of almost £250,000 after regulators found it had been breaking the laws governing sales of mobile phone insurance for more than 10 months.

The Financial Services Authority (FSA), the chief City regulator, revealed yesterday that 118,000 customers who bought insurance from Carphone between January and October last year had not been sent a written statement explaining why the policy was suitable, as insurance regulation requires. Almost half did not even receive a summary of their insurance cover, setting out the main features of the policies they had paid for.

The regulator takes breaches of the rules on the information that must be sent to policyholders after the sale of an insurance policy particularly seriously because, by law, customers must be given an opportunity to consider whether the cover they have bought it suitable for their needs.

Sarah Wilson, director of retail firms at the FSA, said the £245,000 fine reflected the seriousness of the mis-selling case. She said while Carphone had first become aware of the problem last March, it had not been rectified until October.

The failures affected customers who bought policies through a sales company the retailer had acquired. Carphone finally updated procedures at its E2Save sales channel on 24 October.

"Carphone Warehouse should have been open and provided complete and timely information to us," Ms Wilson said. "As a result of the extended delay in fixing the problem, more than 100,000 customers were potentially disadvantaged."

Senior Carphone executives are privately seething about the fine and the fact the FSA had chosen to criticise it so publicly. The company said it had approached the FSA at the start of last year asking to be regulated, even though sales of mobile phone insurance are not automatically policed by the watchdog. Charles Dunstone, the chief executive, said the FSA response felt "a bit like a sledgehammer to crack a nut."

However, insurance experts warned mobile phone insurance was often poor value and riddled with exclusions. Ceri Stanaway, at Which?, said: "Many phone shops try very hard to sell this insurance, but consumers should not be pushed into it and should remember that they can buy cover from independent insurers."

Carphone said last night it had updated its procedures and sent all the missing information to customers who did not originally receive it. It said customers had not lost out.