Losing some noname equipment is not a big deal, but when it comes to unique pieces this makes it a big turn down in my opinion. The only other way to really lose everything a brother holds in case of battle is when fleeing, which is understandable. Winning in the arena with a casualty and not even being able to take your own equipment of your slain comrade is another thing.
I get that you might see it as some way of balancing, but from my point of view it is just too harsh.
"I am a Paladin!"
>OMG, Malthus, there are no damn paladins in Battle Brothers...<
"OK, OK! Then I´m a wrecked down minstrel drunkard pretending to be a paladin, singing so wrong in the midst of battle that even the undead run in fear... Better?!"