I'd say that a bunch of things should happen when you get defeated. Some of those could be you ending up as a prisoner and being carted to the salt mine, where you have to work until either your remaining soldiers come to free you, or you somehow escape on your own.
Or perhaps you're forced to sever all ties with the vaegirs/swadians and become a bandit under pain of death.
Or if you really get clobbered in a fight, you actually die.
I'd like to have a small chance of death in the game, but only at higher levels.