Prepare for Catastrophic Losses Before Disasters Hit

Take these three critical steps as you review and approve your CU’s disaster recovery plan.

July 22, 2013

Tinker Federal Credit Union's branch in Moore, Okla., was decimated by the EF5 tornado that ravaged the area on May 20, 2013.

Tinker FCU's branch in Moore, Okla., was decimated by an EF5 tornado on May 20, 2013. No lives were lost, and the CU has begun rebuilding the branch.

Does your credit union’s disaster recovery plan account for natural disaster losses you’re likely to experience?

Natural disasters can occur in almost every state in the U.S., and they exact a tremendous financial toll:


Hurricane and tropical storm losses accounted for 42% of insured catastrophic losses from 1992 to 2011, followed by tornadoes (34%). Forecasters already are calling for an above-average Atlantic hurricane season, which began June 1.

►Last year the U.S. experienced 38,870 wildfires

Super-storm Sandy in 2012 caused nearly $19 billion in insured property losses.

►This spring’s tornadoes in Oklahoma alone likely will cost in excess of $5 billion.

Your board should review your credit union’s disaster plan so you’re ready for any catastrophic losses that might occur.

The following three steps are essential to an effective plan:

1. Review and update your insurance coverage—including extra expense coverage.

Understand what your insurance does and doesn’t cover. If your policy doesn’t provide 100% replacement value for property, is your credit union prepared for the co-pay? Take into account any property improvements made to your facilities since you last updated your policy limits. 

In addition, look closely at your coverage limits for extra expenses involved in providing member service during disaster recovery. It’s difficult to overestimate what it will cost to run a credit union when a branch or main office has been damaged or destroyed.CU Directors Newsletter

Adequate “extra expense” and other coverage limits for buildings, business personal property, and data processing can be major factors in how quickly and completely you recover from severe damage and the indirect losses.

2. Practice your disaster response plan.

NCUA requires credit unions have a written plan for disaster recovery. But if employees have never seen and practiced implementing the plan, chances are it won’t work when disaster strikes.

Ensure management has all employees read and practice the plan to work out any bugs. In an emergency, any one employee might have to make quick, important decisions.

3. Set up a specific emergency communication procedure.

When disaster strikes and you’ve been in touch with your insurance provider, your top priority should be communicating with employees. You want to see who’s available and who needs help, and you want to share the plan for restoring member service.

Before disaster strikes, employees must know how to get in touch with the credit union in these situations. Every employee should have a “cheat sheet” with them, or at home, which details the first steps to take.

For example, the cheat sheet should provide alternate locations designated for temporary branch service. Board members also should have a cheat sheet.
Include phone numbers and emails (if phone/Internet service is available).

 Essential Disaster Recovery Training Procedures

Three training exercises can bring your disaster recovery plan to life for employees who must implement it under difficult circumstances:

1. A structured walk-through. Involve all employees who play critical roles in conducting your credit union’s business interruption procedures. Read through the plan together, step by step. Note any issues that arise during the walkthrough and clarify them before moving on to the following simulations.

2. Disaster simulation. The most practical type of simulation might be the “tabletop” format, where you conduct the exercise in a conference room or series of rooms, and employees gather in functional groups.

It generally takes two to four hours. You need a credible disaster scenario fully written, including a series of events that happen in timed segments. A facilitator explains the hypothetical events as they occur, and employees must carry out key elements of your business interruption plan.

3. Technical “hot site.” Your plan should include procedures for running operations from alternate sites. The term “hot site” refers to a predetermined facility where the credit union will have access to its data, and the ability to conduct transactions.

This is a demanding test to set up, but it provides critical hands-on experience. A hot-site test should require employees to mobilize in the remote facility, establish communications with the necessary employees and vendors, and perform actual processing. 

For more information on CUNA Mutual Group’s Protection Resource Center.

JONI LOVINGOOD is a senior consultant, risk management, with CUNA Mutual Group.

This article appeared in the July issue of Credit Union Directors Newsletter.