Unit-linked insurance products still have huge market potential in China although the relatively new product line has been experiencing difficulties, senior regulators said yesterday.

But insurance companies need to improve their product development mechanisms as well as transparency to help restore market confidence, and regulators need to be more strict with supervision to prevent risks, they said.

"Product innovation has been a key driver for the development of the insurance industry," said Wei Yingning, vice-chairman of the China Insurance Regulatory Commission (CIRC).

"We still need further development of unit-linked products," he said yesterday at a seminar which was co-sponsored by the Institute of Finance and Banking under the Chinese Academy of Social Sciences and Skandia-BSAM Life Insurance Co Ltd.

New life insurance products, most importantly unit-linked products that provide policyholders with a link with the capital market besides traditional risk protection, have achieved rapid development in China during the past five years.

But as the stock market has suffered a persistent decline during the past two years, shrinking investment yields have frustrated policyholders and increased complaints that insurance agents had misled them about the new products.

But the problems should not darken prospects for unit-linked products and their likes. "Regulators should take a lenient stance on innovation and problems brought by innovation," said Chen Wenhui, director of the CIRC's Life Insurance Supervision Department.

The introduction of unit-linked products has effectively helped insurers prevent the risk of negative interest spread in a low interest rate environment, lifted their services and met the diversified needs of Chinese customers, Chen said.

(China Daily September 13, 2004)