Casualty Insurance Basics

Correct

The answer is A: ISO writes standard policy forms and collects loss data for ratemaking, while ACORD develops standard applications and certificates of insurance.

ISO (Insurance Services Office) develops standard policy forms, such as the HO-3 and the commercial general liability form, and collects loss data that supports ratemaking. ACORD (Association for Cooperative Operations Research and Development) creates standardized forms such as applications and certificates of insurance (for example, the ACORD 25). Neither is a financial strength rating agency; AM Best, Moody's, S&P and Fitch do that. California workers' compensation rating data comes from the WCIRB, not ISO, and ACORD writes no policy forms of any kind; its forms are standardized applications, certificates, loss notices and similar documents, along with data standards.

Reviewed in our October 2026 California fact-check.

Correct

The answer is B: California Workers' Compensation Insurance Rating Bureau (WCIRB)

The Commissioner designates a licensed rating organization as statistical agent (Ins. Code §11751.5), and in California that organization is the California Workers' Compensation Insurance Rating Bureau (WCIRB). Its statutory functions, listed in §11750.3, include gathering statistics, developing advisory pure premium rates and maintaining classification and rating rules. The NCCI serves many other states but is not used in California. ISO works on property and casualty forms and data, not workers' compensation rating. The WCIRBA is not a real organization.

Reviewed in our October 2026 California fact-check.

Correct

The answer is D: Risk avoidance

Risk avoidance means eliminating the exposure by not undertaking the activity that creates it (for example, not constructing a building in a floodplain). Risk retention means accepting the risk, for example through deductibles. Risk transfer shifts the financial consequences to another party, for example through insurance. Loss reduction lessens the severity of losses that do occur (for example, installing sprinklers), while loss prevention makes losses less likely.

Reviewed in our October 2026 California fact-check.

Correct

The answer is D: Lost profits while the factory cannot produce goods during rebuilding

A direct loss is the physical damage the peril itself causes: the destroyed building, raw materials, machinery and equipment, and the cost of rebuilding. An indirect (consequential) loss flows from that damage, such as lost profits while the factory cannot operate, which business income coverage addresses.

Reviewed in our October 2026 California fact-check.

Correct

The answer is A: 95%

The combined ratio is the loss ratio (incurred losses divided by earned premiums) plus the expense ratio (underwriting expenses divided by earned premiums): 65% + 30% = 95%. A combined ratio below 100% indicates an underwriting profit before investment income. The 35% figure is 100% minus the loss ratio, the 65% figure is the loss ratio alone, and 115% has no basis in the figures given.

Reviewed in our October 2026 California fact-check.