Carphone Warehouse has been fined £245,000 by the Financial Services Authority in the watchdog's largest general insurance fine since it began overlooking the sector in January 2005.

The penalty was handed down after Carphone failed to send out documents explaining policies to consumers who bought mobile phone insurance and failed to inform the City regulator of "significant systems failures" at its telesales operation.

The fine was reduced from £350,000 after Carphone was granted a 30 per cent discount by the FSA for agreeing to settle the case at an early stage.

Sarah Wilson, director of retail firms at the FSA said: "The Carphone Warehouse Ltd failed its telephone sales consumers by not giving them all the information necessary for them properly to understand the insurance product they had bought.

"Customers were therefore exposed to the risk of being left with an insurance policy which was unnecessary or provided incomplete cover leading to rejected claims. In either case they could suffer some degree of financial loss."

In another run-in with regulators earlier this year, Carphone was forced to drop a campaign advertising "free broadband forever" by the Advertising Standards Agency.

The FSA investigation found that between 14 January and 24 October 2005, Carphone Warehouse failed to send 118,000 customers, who had bought mobile phone insurance through its telesales channel, a statement of demands and needs in written form.

It later discovered that 56,000 of those customers also did not receive a policy summary setting out its main features.

"This was considered a serious failing by the FSA as both documents contain important information that helps consumers understand the policy they are buying," the watchdog said.

Shares in Carphone were down 4.5p or 1.6 per cent at 274.75p in morning deals. To track the stock click here.