There will be an escalation in legal disputes over policy wordings, despite the FSA's finding that the insurance industry is contract certain, a leading compliance expert has warned.

The FSA said it would not back down on punishing brokers and insurers that failed to hit contract certainty targets, despite finding that the industry as a whole had reached the required standard.

The City watchdog announced this week that insurers and brokers had met the contract certainty targets set by the FSA in December 2004. The ruling, predicted by Insurance Times (News, 21 December) means the industry will avoid tough new rules designed to prevent the "deal now, detail later" culture, which the FSA said was endemic.

The latest market review reported that 88% of the non-subscription market was now contract certain whilst in the subscription market the figure stood at 90%.

Colin Smith, of compliance specialist Navigant Consulting, warned of expensive litigation over insurance contracts as the FSA work had focused on the quantity of contracts that were certain without looking at the "quality".

"More litigation will appear due to the problems of the policy wordings in the London Market which have still not been addressed," he told Insurance Times.

Meanwhile the FSA said that firms lagging behind in achieving contract certainty could face penalties.

FSA chief executive John Tiner said: "We can take action if firms don't pick up on this. But there are those hiding behind the average and that is unfair. We should use our powers to bring those laggards up to speed."

This could mean forcing firms to work under FSA supervision, with further failure to implement contract certainty initiatives would result in regulatory action.

Tiner said the FSA would be "very concerned" about those firms which have not embraced the change process. Dane Douetil, chairman of the contract certainty steering committee said: " I can't see why anybody would want to be a laggard."

Biba will now create a committee with the aim of reducing the 12% of uncertain contracts in the non-subscription market.