China is poised to allow foreign companies access to its huge compulsory third-party (CTP) liability vehicle insurance market.

The financial reform was unveiled during last week’s visit to Washington by Chinese VP Xi Jinping, who is widely tipped to be the next Chinese leader.

“China’s just told us it will open the third-party liability auto insurance market to foreign companies,” US VP Joe Biden said.

While foreign companies already operate in China, the CTP market has been restricted to local providers. 

The move is expected to open up more opportunities for foreign companies when regulators finally relax the rules later this year.

Observers say Chinese consumers have been unlikely to buy insurance from foreign companies if they then have to buy CTP cover from a local insurer.

And while it’s a potentially huge market, it is also very tough.

The China Insurance Regulatory Commission says local insurers lost 7.2 billion yuan ($1.06 billion) on CTP insurance in 2010 – a 148% increase on the 2.9 billion yuan ($427.18 million) lost in 2009.

The China Daily says there were 770,000 car accidents in China last year in which 110,000 people died and 560,000 were injured.