The Financial Conduct Authority (FCA), which issued the fine, said Swinton has set aside £11.2 million to repay customers, due to an "aggressive" sales strategy which prioritised profit over consumers' interests.
It found that Swinton failed to provide enough information for customers and properly monitor phone calls when selling personal accident, home emergency and motor breakdown policies between April 2010 and April 2012. These policies generated an income of £92.9 million.
Swinton did not explain the cover clearly enough or tell customers the monthly policies were optional, the FCA found.
It did not give enough information about the terms of the policy, including the conditions and limitations, and cancellation process. The nature of the failings and poor sales scripts meant that "every sale could have been a mis-sale".
Swinton said it "unreservedly apologises to customers" and has changed its sales script and improved its monitoring process. It has contacted over 650,000 customers it believes may have been affected and has already repaid £1.9 million to customers. Any policy holder who believes they bought monthly cover as a result of mis-selling should contact Swinton directly.
The total fine of £7,380,400 includes a 30% discount as Swinton settled at an early stage of the investigation.
Swinton's chief executive Christophe Bardet said: "We apologise for these shortcomings. They were not compatible with the proud history of Swinton... Our focus is now to deliver on our promise of insurance with a personal touch. Swinton is embarking on a £60 million investment in growth which puts the customer at the heart of everything we do."
Which? executive director Richard Lloyd said: "It's good to see the FCA handing out a hefty fine, which sends a very clear message to the insurance industry that mis-selling won't be tolerated. As part of its review of the insurance industry the FCA should scrutinise how sales incentives are offered to staff in-store and how online marketing and product information is presented to customers."