According to several newspapers including The Independent and The Times of London, Berkshire Hathaway has expressed an interest in bidding for Royal Bank of Scotland’s Direct Line insurance business.  RBS is facing an EU deadline to sell the Direct Line business by the end of 2012.  The business has been facing losses recently due to soaring injury claims.  The possibility of a bargain purchase may have attracted Warren Buffett’s interest.  Other potential buyers include Allstate.

According to Direct Line’s website, the company “started from scratch” in the UK in April 1985 selling auto insurance over the telephone.  Today, the company claims to have over five million customers and sells a broader range of products and services.  Business operations have expanded from the UK to Germany, Italy, and Spain.  The company continues to focus on a direct sales model through the internet and telephone.

According to The Independent, the Direct Line business is likely to be sold for “substantially less” than the £4.5 billion offer submitted by private-equity firm CVC in 2009.  However, the company is looking for bids of at least £6 billion.  Berkshire Hathaway may want to expand into the European market and Direct Line has a business model that appears to be similar to GEICO’s direct sales approach.  However, unlike Direct Line, GEICO is highly profitable and has demonstrated remarkable consistency in recent years.

Whether Direct Line’s current problems are due primarily to transient factors or to underlying issues with underwriting discipline or internal controls is one factor that Berkshire will no doubt examine very carefully prior to making a bid.

Disclosure:  The author of this article owns shares of Berkshire Hathaway.