This isn’t just about buying more coverage. It’s time to admit the industry has been doing this wrong – and having an honest conversation about what protection we actually need.
Picture a senior executive walking into the boardroom wearing a child’s jacket – buttons straining, sleeves riding up, collar uncomfortably tight. Absurd, right? Yet this is precisely how most organisations approach insurance. They’re spending fortunes on policies sized for a different company, shaped by outdated assumptions, covering risks they don’t actually face while leaving genuine exposures unprotected. And, those ill-fitting clothes cost more than properly tailored ones would.
This isn’t just about buying more coverage. It’s time to admit the industry has been doing this wrong – and having an honest conversation about what protection we actually need.
Renewals Becoming the Ritual
Insurance renewals follow a familiar rhythm. Last year’s policy arrives for review. The broker presents quotes. Finance or procurement negotiate on price. Everyone signs. The process feels professional, thorough, reassuring. Nobody gets fired for doing what everyone else does.
But ask a simple question: “What specific exposure does this policy protect us from, and why is that the right amount of protection?” The answers get vague quickly. “Industry standard coverage.” “Similar to our peers.” “What the broker recommended.” These aren’t risk management decisions – they’re risk avoidance decisions. We’re avoiding the uncomfortable work of actually understanding what we’re buying and mapping against actual risk exposure.
The ritual persists because it serves multiple purposes beyond protection. It satisfies auditors. It checks governance boxes. It creates the appearance of diligence. Most importantly, it lets everyone involved avoid difficult questions about whether we’re allocating capital wisely or simply following tradition.
CFOs and some savvy shareholders typically view insurance as unavoidable overhead – a necessary evil that consumes budget without contributing to growth. And when you treat protection as overhead rather than strategic capital allocation, you stop asking whether you’re spending wisely. You just try to spend less, often in ways that leave you worse off.
The Real Cost of the Wrong Fit
The problem isn’t just wasted premium, though that’s substantial. It’s fundamentally misallocated protection. Companies routinely overpay for coverage on predictable, manageable exposures while leaving catastrophic tail events – the ones that could actually threaten survival – inadequately insured.
A company carries low deductibles on routine property damage because “we need comprehensive protection.” Those small, frequent losses are predictable operating costs. You’re paying the insurance company to handle predictable expenses, plus their profit margin, commissions and administrative costs. I’ve done the calculation; it’s one of the most expensive forms of capital available to a company. Meanwhile, the same company might carry insufficient limits on liability or business interruption, the events that could genuinely cripple operations.
This isn’t protection. It’s expensive administrative outsourcing of routine costs combined with genuine underinsurance where it matters. The child’s jacket that is tight across the chest and leaving the arms exposed doesn’t protect from the rain.
Why does this continue to happen? Because most organisations renew insurance without first understanding what they’re actually trying to protect against. They start with last year’s policy instead of this year’s exposures. They benchmark against industry peers without asking whether those peers have similar risk profiles. They negotiate on price without clarity on value.
The broker relationship reinforces this pattern. When compensation is tied to premium volume, the incentive is toward more coverage, not better-fitting coverage. Challenging whether certain coverage is necessary becomes awkward. Suggesting higher deductibles on routine exposures feels like reducing service. The economics reward complexity and comprehensiveness over appropriateness.
The Courage to Ask Different Questions
Transformation requires honesty about what insurance actually does: it smooths cash flow by transferring tail risks – those low-probability, high-impact events that would otherwise create devastating spikes in capital requirements. That’s its economic function. Everything else is either risk financing inefficiency or governance theatre.
This reframing changes everything. If insurance exists to protect against tail events, then the first question isn’t “What coverage do we need?” It’s “What exposures could create cash flow shocks we can’t absorb?” This requires actually understanding your risk profile before shopping for transfer mechanisms.
Most organisations skip this step entirely. They go straight to policy comparison without first mapping what could go catastrophically wrong and what the financial impact would be. It’s like shopping for clothes without knowing your measurements – you’ll end up with whatever the salesperson thinks you should buy. Armed with actual exposure understanding, insurance decisions transform from “What can we afford?” to “What transfer makes economic sense?” A routine loss that happens every few years isn’t an insurance opportunity – it’s a budgeted operating cost. A catastrophic event that could happen once in decades and would consume capital needed for operations? That’s what insurance is for.
This means having difficult conversations. With brokers about why you’re increasing deductibles on some coverage while demanding higher limits on others. With operations about improving risk management quality. With finance about treating insurance as capital allocation, not overhead. With the board about the difference between comprehensive coverage and appropriate coverage. With yourself about whether you actually understand what you’re buying.
Transformation doesn’t require revolution. It requires three honest questions asked before every renewal:
- “What exposures could create cash flow shocks we cannot absorb?” Most organisations discover they’ve never systematically answered this. They’ve inherited policies, not analysed vulnerabilities. Last time we did this, we tripled our limits.
- “Are we paying to transfer routine costs or protect against tail events?” Every euro spent insuring predictable losses is a euro not available for protecting against catastrophic ones – or for investing in prevention, resilience, or growth. The child’s jacket costs more than adult clothes would, while fitting worse.
- “Can we defend our insurance decisions with the same rigor we apply to other capital allocation?” If you wouldn’t approve a capital investment without understanding the return, why approve insurance spending without understanding the exposure? Risk transfer deserves the same analytical discipline as any other use of shareholder capital.
The clothes don’t fit. They never did. And they’re costing you more than properly tailored protection would. The question is whether you’re ready to have an honest conversation about it.
Alex Sidorenko
Group Head of Risk, Insurance and Internal audit
Serra Verde
