Swinton Group was fined £770,000 by the Financial Services Authority yesterday for mis-selling payment protection insurance (PPI).

The consumer group Which? criticised the fine as inadequate.

The FSA imposed the penalty on the insurance broker for mis-selling PPI alongside motor and home insurance to 350,000 customers.

The regulator said that Swinton had wrongly chosen to include PPI automatically in its insurance quotes, without first establishing whether each customer had any need for the product, which is designed to cover insurance premiums if the policyholder is unable to pay because of accident, sickness or unemployment.

Swinton has agreed to contact 350,000 customers, who bought a total of 480,000 policies between December 2006 and March 2008. It will offer them a refund of the premiums paid for PPI. In addition, Swinton will review previously rejected claims and pay compensation where appropriate.

Vera Cottrell, personal finance campaigner at Which?, said that Swinton had got off lightly. She said: “This is a truly shocking case. As an insurance broker, Swinton is supposed to give tailored advice to its customers. Instead, it saddled thousands of people with unnecessary and unsuitable insurance.”

She argued that instead of customers being offered the option of a refund, they should be given it automatically without any quibbling. She said: ”Too few people are likely to claim back the £15 to £20 which they paid in premiums, which would mean Swinton is getting off lightly.” She added that the fine was just under one tenth of the £7.8 million revenue that Swinton had generated from PPI sales.

Swinton stopped selling PPI in March 2008 at the request of the FSA after the failures in its sales process had come to light.

In addition to automatically including PPI in its insurance quotes, Swinton did not make it clear that PPI was optional and failed to reveal that the policies cost only £1.21 each, with the remainder of the £15 to £20 charged going as a fee to Swinton.

A Swinton spokesman said: “Swinton takes the matter very seriously and will be contacting all customers concerned. The company apologises to any customer affected and has set up a dedicated unit to deal with the PPI cases.”

This month, the FSA and companies selling PPI agreed on an industry-wide package of measures for consumers, including refunds totalling about £60 million. The companies selling PPI agreed to refund premium rises and reverse any reductions in cover that took place in 2009.

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