A potential deal for Zurich Financial Services AG (ZURN.VX) to buy American International Group's (AIG) direct auto insurance business could give Zurich a presence in the rapidly growing direct-to-consumer auto insurance business long dominated by some of the largest auto insurers.

The ongoing negotiations, reported in the Wall Street Journal, have Zurich looking at a $1.5 billion to $2 billion deal to buy 21st Century Insurance, the unit of AIG that sells direct to consumers over the phone or on the Internet, without the use of agents.

The direct-to-customer model eliminates insurance agents and appeals to drivers via heavy advertising and Internet use, and has helped propel Progressive Corp. (PGR) and Berkshire Hathaway Inc.'s (BRKA, BRKB) Geico Insurance Co. to the top ranks of auto insurers.

Though much smaller than Progressive and Geico, 21st Century uses the same direct-marketing channel to reach customers. Farmers Insurance, Zurich's U.S. personal-lines business, sells products through its own agent network.

After AIG acquired the portion of 21st Century that it didn't already own in 2007, it integrated the direct auto insurance marketer into its own direct-to-consumer auto insurance business.

AIG's troubles have hurt its auto insurance business. In April, AIG confirmed that it had laid off 7% of the workers in its personal auto business because of a drop in accounts.

In March, 21st Century sent a letter to some customers to reassure them that it didn't share the capital problems of AIG, which has borrowed billions from the government to cover losses in its derivatives business.

AIG doesn't report auto insurance premiums for the units, but insurance rating agency A.M. Best Co. said that in 2007, AIG wrote just under $5.4 billion in premiums overall, which represented a 2.8% market share for auto insurance sales in the U.S.

In 2007, Farmers Insurance Group wrote $9.2 billion in auto insurance premiums and was the fifth-largest U.S. auto insurer by premium.

-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141; lavonne.kuykendall@dowjones.com