In a volatile world, risks abound—such as cyberattacks, extreme weather events, and geopolitical shifts—making insurance a strategic lever for building financial resilience and protecting enterprise value.
Optimizing insurance spend could unlock savings of 10 to 20 percent for many large organizations, based on what we see with clients. But achieving this level is not simple. Insurance is a traditionally hard-to-crack category that calls for finance, risk, and insurance managers and procurement teams to work together: finance and risk as the owners of technical knowledge, and procurement with the negotiating skills and tools to turn that knowledge into leverage.
Despite its ability to materially affect a company’s performance, insurance is often treated as just another cost line, especially since it typically accounts for a small share of total indirect spend. The result? Insurance is often undermanaged, rarely prioritized in sourcing strategies, and policies are renewed each year without review.
Three common challenges explain why insurance is so often overlooked: First, benchmarking insurance pricing is difficult given the opaque market dynamics. Second, fragmented ownership leads to risk, finance, and local-business-unit purchasing of coverage independently, creating overlaps, inconsistent deductibles, and missed scale opportunities. And third, risk aversion and legacy coverage result in policies being added reactively, even when a company’s actual risk exposure has changed.
Despite the challenges, leading organizations are already achieving material reductions in total insurance cost and improving liquidity by optimizing their total cost of risk (TCR). TCR helps strike the right balance between over-insurance and over-exposure by quantifying all risk categories and assessing their financial impact; identifying diversification effects between risks that reduce volatility; and modeling different deductible levels and coverage structures to determine the optimal trade-off between premiums and retained losses.
While procurement does not directly own TCR, it is an important concept to understand when managing insurance spend. The unique value procurement brings is deep experience in structuring bids and driving a more competitive negotiation strategy.
Three proven ways procurement can optimize insurance
Finance, risk, and insurance teams can partner with procurement to optimize insurance spend through proven commercial, demand, and process levers—without compromising coverage. Establishing a structured, transparent, and commercially disciplined process for sourcing and managing insurance coverage is at the heart of the approach.
Commercial levers: Cultivating a smarter buy-side strategy
Working closely with insurance managers, procurement can deliver quick wins by improving how an organization sources and manages insurance contracts and brokers, with three strategies standing out:
Rationalize brokers. Most companies use brokers as insurance intermediaries, with commissions typically adding 4 to 15 percent to premiums. Companies can shift broker fee structures to flat or performance-based fees to remove conflicts of interest and tie compensation to measurable outcomes, such as applying pressure to drive faster claims resolution or improve coverage terms, and incentivizing the broker to provide alternative quotes before the renewal date. Broker relationships can mature to strategically leverage unique broker expertise where it matters—for example, to navigate the disparate pricing of carriers, to get the best portfolio price, to provide advisory on the right coverage to match risk tolerance, and to identify over/under-coverages. Finally, procurement can negotiate directly with carriers when feasible—for mature, commoditized lines, for example, such as property, some residual liability lines, or fleet insurance.
Bundle and synchronize. Many organizations renew policies on different timelines across regions or business units, losing negotiating leverage and incurring administrative costs multiple times. By bundling insurance packages across geographies and aligning renewal dates, companies can consolidate negotiations, simplify vendor management, and unlock 3 to 5 percent in cost savings. Bundling also improves an insurer’s capital efficiency by diversifying risk pools, thereby translating into lower premiums.
Ensure rightsized coverage. Insurers often base premiums on replacement value rather than market value, which can result in over-coverage. Challenging discretionary or redundant coverage that no longer aligns with the company’s risk appetite can yield savings of 7 to 10 percent.
Demand levers: Calibrating risk appetite
Managing insurance demand starts with a clear alignment between procurement, finance, and risk and insurance teams on what level of volatility the business can tolerate.
Adjust deductibles and self-insure expected losses. Premiums include insurer markups for broker commissions, operating costs, and profit margins. By increasing deductibles up to the level of expected annual losses, companies can remove these markups while keeping total exposure constant. For large organizations with stable cash flows, self-insuring expected losses or using a captive insurance structure can yield 5 to 10 percent savings and provide access to reinsurance markets at more favorable terms.
Invest in risk mitigation. Proactive risk management directly reduces premiums over time. Programs that strengthen fire protection, improve driver safety, or reduce workplace accidents can impact insurance spend, though the results of such improvements typically materialize over two to three years.
Process levers: Enhancing transparency and performance
Procurement can create further value by improving process efficiency, transparency, and governance in the insurance function.
Streamline claims management. Inefficient claims processes often delay payments or lead to missed recoveries. Establishing a centralized claims strategy by consolidating documentation, defining clear roles, and monitoring response times improves outcomes and allows procurement to work with carriers on service KPIs.
Centralize governance and data. Leading organizations set up central insurance management functions that consolidate data across all policies, premiums, and claims. This enables fact-based negotiations, better risk forecasting, and consistent decision-making across business units. AI tools now make it easier to track exposures and simulate scenarios, bringing transparency to how risk decisions affect financial performance.
The new frontier: Dynamic, data-driven insurance
Looking ahead, the proliferation of AI will give both insurers and procurement teams more powerful insights to manage risk and spend. Insurance companies can use agentic AI to drive efficiency and support more granular risk scoring, for example, through improved accuracy of underwriting or augmented claims management; and savvy procurement teams can leverage the fact that carriers are both better able to price each company’s risk profile and reduce the cost to serve through AI, to negotiate better premiums or coverage. Procurement teams will also be able to use AI to submit improved risk and claims data or prove a better risk profile.
As insurance continues to shift away from static, annual renewals toward dynamic, data-driven spending and procurement, the procurement function is well-positioned to guide this transformation.
Closer collaboration will be key to unlocking value from this hard-to-crack category: Procurement can partner with risk and finance teams to embed analytics into sourcing conversations, consolidate and standardize exposure and claims data, and design sourcing strategies that capture value from an evolving partnership model.
The time to make your next brilliant procurement move is now.