Insurance is not a substitute for underwriting
Cover protects the lender from an event. It does not tell you whether the company can repay. Confusing the two is how portfolios get hurt.
Priya Raghunathan
Partner, Risk & Insurance
Risk in brief
Part of our Risk series, this 5 min note is written by Priya Raghunathan, Partner, Risk & Insurance, and sets out what the desk is seeing, followed by the three points we would watch before signing.
- Series
- Risk
- Published
- 7 May 2026
- Author
- Priya Raghunathan · Partner, Risk & Insurance
- Reading time
- 5 min
Every facility we write carries cover: credit, key-person, directors and officers, or asset. It is placed at close, negotiated with the loan documentation in the same room, and tested annually against the portfolio. None of that makes a weak borrower strong.
The failure mode we watch for is a credit file that leans on the policy. If the case for a facility only works because a claim would pay out, the facility should not be written. Insurance transfers a defined tail risk; it does not improve the base case.
The second failure mode is wording. A policy that excludes change of control, or that requires notification within a period the company cannot practically meet, is a policy that will not pay when it is needed. We read exclusions before we read limits.
The discipline is straightforward: underwrite as if the policy does not exist, then insure the residual. Firms that reverse the order tend to discover the difference at the worst possible moment.