I'm glad to share my thoughts!! Especially since I've been doing a lot of research towards eventually making my own RPG which eschews standard progression, it's very interesting for me to see what a game can do thematically with the idea and the new challenges it presents. But, also, I love hearing other developers' thoughts on their games, you just can't get that kind of perspective anywhere else.
I *did* figure out how Death Sensitivity worked! It took me until pretty late through my second attempt, but I did get it. I think it could *maybe* be a bit clearer but I enjoy the way that it, like many other details about each character, is stowed amongst the menus in such a way that it incites curiosity. I agree the pathway for discovery could be clearer, but that's really tricky to nail.
I do also feel your point about the thematic texture of battle not having any reward other than survival - I think it's a good idea, I think encouraging avoidance of fights makes sense and suits the game's tone. My thoughts regarding it more center around, "I would either like avoiding combat to feel a bit more purposeful, or combat itself to feel more meaningful from a metagame perspective," and, yeah, I think that the former feels like a better fit overall? Being able to see enemies who just left the screen would definitely have been neat in that way, I think - although, maybe environmental details, footprints and the like, could have also been a nice way to signal enemy pathways to unfamiliar players, too? Since skulls on the ground also serve a similar purpose, in a different context.
I think "you can do everything right and still lose" is definitely an interesting conceit to explore, especially in a medium very focused on control, but one of the tricky parts about it is that it can potentially lead to players playing in overly defensive and ultimately less enjoyable ways out of attempting to prevent those sorts of cases The *other* tricky part is that, even in games with procedurally generated content, failure *basically* always takes the form of redoing content in some form, so it can feel like one's time is being robbed due to no fault of their own (again, borders non-issue for Cataphract due to *very* short length between saves, but does kind of feel like a strange hiccup to me?). I feel like procedural story generators (a la Dwarf Fortress) are *probably* the most likely to surmount this issue because randomly-generated disaster ends up still being interesting anyway, but I imagine there must be other examples too. I think your thought on exploring combat as both a tactically engaging but harsh and extrinsically unrewarding experience is interesting. I almost wonder if permanent negative impacts from combat could in some ways help to sell this - but then players would probably try to avoid those consequences by metagaming like frequent save/loading even more...