LOS ANGELES, CA -- A California ballot measure underwritten by Mercury General Corp. would allow insurers to raise or lower automobile insurance premiums based on a driver's coverage history, including the ability to raise rates based on the absence of prior coverage.

California Attorney General Jerry Brown cleared "The Continuous Coverage Auto Insurance Discount Act" for signature gathering and released an official summary on Aug. 13. Petitioners must gather 433,971 valid signatures to get the initiative on the June 2010 primary election ballot.

Mercury General is, to date, the sole contributor to the ballot campaign, Californians for Fair Auto Insurance Rates. The insurer and its affiliates have donated $500,000 to the campaign, plus $12,000 in "non-monetary" support, according to California campaign finance records. The campaign Web site includes the disclaimer, "Paid for by Californians for Fair Auto Insurance Rates and Mercury General Corporation and Affiliates."

The measure would allow insurance companies to lower premiums for drivers who "have continuously maintained auto insurance coverage," even if they switch to a different insurer. Companies would be permitted to consider "claims experience" when calculating eligibility for and the extent of any reductions.

To CalFAIR, the measure corrects an inconsistency in state law that discourages consumers from switching to another insurance company. Mercury General Group ranks third in the state in market share for private passenger auto insurance, with 9.4%, according to 2008 A.M. Best Co. state/line data.

To the advocacy organization Consumer Watchdog, however, the initiative is nothing short of a "declaration of class war on millions of Californians." In a letter to Mercury General Chairman George Joseph, Consumer Watchdog wrote, "As one of the 1,000 richest people on the planet, isn't there a better use of your resources than an initiative that wages class warfare on the Californians who are not as fortunate as you?"

In practice, Consumer Watchdog claims, consumers who decide not to drive and let their insurance lapse would be penalized against, as would one who files one late payment. The initiative would allow insurers latitude to raise rates after a policyholder files a claim, even when the policyholder is not at fault; this would create a "perverse incentive" to not file claims or report accidents, it said.

"Mercury is using the initiative process to go after middle class Californians by allowing insurance companies to raise rates on struggling families in the middle of an economic crisis," Consumer Watchdog Executive Director Doug Heller said in a statement.

The proposed changes would bring California in line with most states by allowing insurers to offer discounts to all drivers who maintain ongoing auto insurance coverage, CalFAIR said in a statement. It would not change the provisions in current law that requires insurers to base their rates primarily on driving safety record, miles driven annually and driving experience.

Attempts to reach representatives of CalFAIR and Mercury General for comment were not successful.

Shares of Mercury General Corp. (NYSE: MCY) were trading at $36.47 in late-afternoon trading on Aug. 18, down 0.44% from the previous close.

The top five writers of private passenger auto insurance in California in 2008, based on A.M. Best Co. state/line data, were: State Farm Group, with a 12.9% market share; Farmers Insurance Group, 11.0%; Mercury General Group, 9.4%; Auto Club Enterprises Insurance Group, 9.0%; and Allstate Insurance Group, 8.4%.