No one would argue that in the past few years almost every business has struggled through tough economic times. The economy has hit workers' compensation insurers particularly hard. Given that workers' compensation premiums are based on employee payroll, the insurance industry would expect to see a similar decline in payroll as that of its premiums. However, according to the Bureau of Economic Analysis, wage and salary disbursements had a net increase of 3.5% over the past three years.

While the rate decreases that workers' compensation insurers have made over the years can explain a portion of the discrepancy, they do not explain the majority. The gap between payroll disbursements and written premium is widening, leaving almost one half a trillion dollars of payroll unexplained to insurers. This widening gap is making insurers question if they are underwriting the actual exposure, and if that exposure is classified correctly.

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