Royal Bank of Scotland’s insurance arm Direct Line being demerged from the parent company is gearing up to slash about 900 employees, as a part of its £100m cost-cutting drive.

The auto insurer has drawn an outline to save the aforesaid amount by incorporating numerous austerity measures by 2014, as it is struggles to fair well in a saturated UK auto insurance market.

Under the job reduction plan, the motor insurer will shut down an office in Teeside which employs 500 people.

Direct Line owns the Churchill and Green Flag brands and employs approximately 15,000 staff.

The 82% government owned RBS has been ordered by European regulators to offload the business or float the unit by 2013, as a condition of getting its bailout from the UK government.

Direct Line chief executive Paul Geddes said, "We have not made these proposals lightly and fully understand the impact this will have on our people. As we have done in the past, we will be open and honest, dealing fairly and carefully with those affected."

Direct Line Group has insurance companies in the UK, such as Direct Line and Churchill, as well as Privilege, Green Flag and NIG.

According to an industry report, the integrated businesses, which will be the largest motor insurer in the UK, will be worth anywhere between £3bn and £4bn.

RBS is also gearing up to dispose of a minority stake in the Direct Line through an initial public offering in the second half of 2012, followed by another sale in 2013, which will reduce its total stake in the insurer to less than 50%.