The CFO of a $4 billion cleaning company that had $175 million tied up as collateral for its insurance coverage recently found himself across the table from the chief credit officer and chief actuarial officer of his company's carrier. His goal: Get the insurer to agree to reduce that collateral requirement, which ate up 75% of the company's credit revolver. Marcia Linton, national practice leader for Wells Fargo Insurance Services USA, who was helping this company negotiate its policy renewal, says that by conducting a "thorough review" of the company's financials as well as its third-party actuarial calculations and vetted loss projections, the CFO was able to convince the carrier to reduce its collateral requirement by $20 million in the first year and another $17 million in the second year.

Insurers require collateral to guard against the risk the insured company might fail to pay future premiums or retained losses, particularly in the event of a bankruptcy. But increasingly, companies confronting the need to conserve cash and maximize access to credit and facing a relatively soft insurance market are challenging carriers' collateral demands. In many cases, they can win significantly better terms.

The key is dealing with a company's insurance needs strategically, says Jim Fay, a managing director at Corporate Risk Solutions in Atlanta. "This is not something you should start thinking about 90 days before your renewal date," Fay explains, suggesting companies start to prepare six months in advance.