At some point, every risk manager has received the mandate: reduce insurance spend by 15-20% over the next two years. Meanwhile, exposures are growing 10-15% annually, rates are rising, and your coverage needs aren't decreasing. 

At the Risk Leadership Roundtable in New York City, senior risk managers from leading organizations discussed how they navigate these seemingly impossible constraints. What emerged was a framework for strategic decision-making that goes beyond simply cutting coverage. 

The Impossible Math 

Let's start with the reality. You're told to reduce spend by 20% over two years. In that same period: 

• Your exposures will grow 20-30% through acquisition, expansion, or inflation. 

• Insurance rates may increase 10-25% depending on line of business. 

• Your organization's risk profile is becoming more complex, not simpler.

The knee-jerk response—raise retentions, lower limits, eliminate coverages—often backfires. But what if you increase retentions only to see premiums return to previous levels the following year? You’re paying the same premium with higher retained exposure. 

Effective insurance cost management starts with a framework that helps leadership understand the tradeoffs. 

The Four-Bucket Framework 

Consider categorizing your insurance portfolio into four distinct buckets: 

Bucket 1: Required Coverage  

These are non-negotiable. Workers' compensation, contractual insurance requirements, and regulatory mandates fall here. You can optimize the structure—consider captives, fronting arrangements, or alternative delivery—but you can't eliminate the coverage. 

 Strategy: Minimize cost while maintaining compliance. Focus on efficiency, not elimination. 

Bucket 2: Risk Appetite Coverage  

These policies protect against catastrophic events that would materially impact the organization's financial position. Earthquake for West Coast REITs. Cyber for technology companies. High-limit excess casualty for transportation companies. 

The CFO test: What loss would affect our stock price or require board notification? Coverage below that threshold is discretionary; above it is strategic. 

Strategy: Align limits with board-approved risk appetite. Use data to demonstrate that retained risk falls within acceptable parameters. 

Bucket 3: Strategic Coverage  

These policies build long-term capacity or maintain critical relationships. Multi-year programs locked in during soft markets. Emerging coverages purchased early (like cyber insurance 10-15 years ago) to establish relationships before they become critical. Capacity from carriers who stood by you during difficult renewals. 

Strategy: Think 3-5 years ahead. What capacity will you need that's hard to access? What relationships matter most? 

Bucket 4: Optional Coverage  

These are "nice to have" coverages that you buy when pricing is attractive. EPL during soft markets. Specialty coverages that address low-frequency, low-severity risks. Coverage where the organization has excellent loss experience and sees arbitrage opportunity. 

 Strategy: First to cut, first to add back when pricing improves. 

Applying the Framework 

One roundtable participant walked through their process: 

Step 1: Categorize every policy  

They classified their entire program across these four buckets, creating a visual representation of where premium dollars were allocated. The exercise revealed that 40% of their spend was in the "Optional" category. 

Step 2: Engage leadership on risk appetite  

They asked their CFO: "What size loss would we need to report to the board? What would affect our stock price?" This clarified where the line between Bucket 2 and Bucket 4 fell. 

Step 3: Strategic reallocation  

Rather than across-the-board cuts, they eliminated all Optional coverage, achieving 90% of their reduction target. They then slightly increased retentions on Required coverage (funding through their captive) to reach 100%. 

Critical: They maintained all Strategic coverage despite some being temporarily overpriced. 

Step 4: Data-driven pushback  

For the remaining program, they used insurance data analytics to demonstrate value. They showed leadership the distribution of potential losses, the probability of breaching retention, and the impact on balance sheet volatility. 

The Data Foundation 

This framework only works with solid data. Participants emphasized several requirements: 

Exposure data accuracy  

One participant noted they'd purchased a building for $2 billion but replacement cost was closer to $1 billion. Insuring at acquisition cost meant they were overpaying for coverage they didn't need. Their program data helped identify these discrepancies across their portfolio. 

Loss history analysis  

Understanding frequency and severity by coverage line reveals where you're getting value. One organization discovered their workers' comp program ran about $35 million through their captive annually with extremely predictable losses—making it an ideal candidate for retention. 

Total cost of risk calculation  

This goes beyond premium and paid losses. Include risk control costs, claims administration, captive capitalization, broker fees, and internal FTE. The full picture often reveals unexpected opportunities. 

Benchmarking data  

How does your spend compare to peers? What about loss ratios? One participant noted that their broker provided industry benchmarks, but they pushed for actual peer company data (anonymized) to better assess their position. 

Advanced Strategies 

Beyond basic budget cuts, sophisticated organizations employ several tactics: 

Multi-year commitments  

Locking in favorable pricing across 2-3 years smooths volatility and can reduce total cost. One participant successfully negotiated multi-year D&O coverage with a single aggregate limit, reducing total premium by 20% versus annual renewals. 

Program restructuring  

Splitting programs to increase competition can work. One organization separated a product’s unique exposure from their general program. Suddenly, carriers uncomfortable with risk could compete for the traditional business, and specialty carriers focused on the unique exposure. Both programs saw improved pricing. 

Captive leverage  

Rather than just using captives for retention, use them as negotiation tools. Several participants noted telling carriers: "If your rate isn't competitive, we'll move this to our captive." The threat isn't idle if you have a functioning captive ready to write the coverage. 

Broker fee negotiation  

Most large organizations pay fixed broker fees. When budgets are tight, renegotiate what services are included. Can broker-adjacent services (claims consulting, risk control, analytics) be provided from negotiated commission to reduce out-of-pocket expenses? 

What Not to Do 

Participants shared cautionary tales: 

Don't cut blindly across programs  

A 10% reduction in every policy sounds fair but ignores that different coverages provide vastly different value. 

Don't eliminate limits on long-tail exposure  

D&O, EPL, and similar coverages with long development periods shouldn't be cut just because recent experience is good. You're solving for unknown future exposures. 

Don't assume your broker has optimized commission  

One participant discovered their broker was earning significantly more than peer arrangements for similar services. After renegotiation, they reduced broker costs by 15% without changing coverage. 

Don't ignore internal costs  

When comparing captive versus traditional insurance, include captive management fees, audit costs, actuarial expenses, and regulatory compliance. The total cost picture matters. 

Making the Case to Leadership 

The framework helps, but you still need to communicate effectively upward. Participants offered several suggestions: 

Lead with scenarios, not statistics  

Instead of "our retention is $5M," say "if we have a significant cyber event, we'd pay the first $5M before insurance responds." 

Quantify volatility  

Show the distribution of potential outcomes. What's the 50th percentile cost? 90th? 99th? Help leadership understand what "good" and "bad" years look like. 

Compare to alternatives  

If you can't buy coverage, what's the alternative? Self-insurance? Risk acceptance? Make those options explicit with dollar values attached. 

Benchmark thoughtfully

Saying "our peer companies spend less" may not resonate if your risk profile is different. Benchmark against similar risk profiles, not just similar industries. 

The Long View 

Perhaps the most important insight from the roundtable: this isn't a one-time exercise. 

Your four-bucket categorization should be revisited annually. Coverage that's Strategic one year may become Optional the next if you've successfully diversified risk or if market conditions change. Required coverage may shift if regulations change. 

Risk reporting that helps leadership make these decisions requires this kind of framework thinking. Traditional metrics—premium per million of revenue, total cost of risk (TCOR)—matter, but they don't guide strategy. 

The organizations that navigate budget constraints most successfully are those that can clearly articulate: 

• Why we buy this coverage (which bucket) 

• What we're protecting against (risk appetite alignment) 

• What alternatives we considered (strategic thinking) 

• What might change (forward-looking analysis) 

Final Thoughts