Warren Buffett's Berkshire Hathaway Inc. is adding sales of insurance coverage on foreclosed homes and properties occupied by distressed borrowers to make money from banks burned by the mortgage market's collapse.

Berkshire is following Munich Re, the world's biggest reinsurer, and QBE Insurance Group Ltd. of Australia in targeting one of the few expanding U.S. insurance markets. The policies are riskier than typical home coverage because the properties are more prone to neglect or vandalism.

Berkshire, of Omaha, is attempting to benefit from a three-year quadrupling in the supply of foreclosed properties.

"This is one of those niche areas that is growing," said Robert Hartwig, president of the Insurance Information Institute in New York. "The homeowners market overall is not growing much."

Berkshire's expansion this year includes so-called forced-placed coverage, in which lenders require borrowers to buy new insurance after original policies lapse. In lender-owned policies, banks protect homes or unfinished developments they seized in foreclosure.

The business is "part of our efforts to adapt to changing market conditions," Berkshire Hathaway Homestate Cos. said in a posting on its Web site in April. The company said it plans to cover both residential and commercial properties and that it will not underwrite coastal areas or most mobile homes.

The two-year drop in home prices eroded the value of lenders' collateral. That investment can be further depleted by fire, tornadoes and what Homestate calls "malicious mischief," if their customers stop paying for homeowners insurance.

Lenders contract with specialized carriers including Assurant Inc. and Bank of America Corp.'s Balboa Insurance Group to make sure borrowers are current on their insurance and issue temporary policies when coverage is dropped. In some cases, a broker like Seattle Specialty Insurance Services Inc. monitors a bank's portfolio and arranges emergency coverage.

Berkshire's approach to forced-placed coverage contrasts with QBE, Munich Re and B of A, which bought established businesses. Bank of America inherited Balboa last year in its $2.5 billion takeover of the mortgage lender Countrywide Financial Corp. Munich Re acquired American Modern Insurance Group in Cincinnati in its $1.3 billion purchase of Midland Co. in April 2008.

Buffett's company may have difficulty winning clients, market participants said. "What are they going to bring that no one else has?" said Rick Pedack, the president of Seattle Specialty. Will Berkshire "be cheaper than anyone else, or" will it "pay more commission?" he asked.

But banks seeking to cut costs may give Berkshire an opportunity to take business from established carriers. Lenders are increasingly focusing on minimizing losses, said Bill Horan, the vice president of strategy and marketing at American Modern.

"The mortgage servicers and lenders of the world have become more price-savvy," Horan said. "Before it used to be about how well we serviced the customer and how warm and fuzzy we made the customer feel about the process. As the market has turned, many more lenders are concerned about the bottom line."

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