With hurricane season still in full swing, winter storms right around the corner and Ebola victims in the news, it's imperative for credit unions to ensure they have proper protocols in place to handle catastrophes of any kind, according to CUNA Mutual Group.

“You need to know what types of natural disasters could possibly occur in your area and devise a contingency plan for each scenario,” Jim Hunt, staff underwriting specialist for CUNA Mutual Group, said .“Not only do you have to plan for Mother Nature, but also for man-made disasters.”

Cyberattacks, terrorism, pandemics and deranged people are among the newest threats facing credit unions, he said. Not only can being prepared possibly save lives and prevent disruption of service to members, it can enable cooperatives to lower property and business liability costs, Hunt noted.

Read more: CUNA Mutual reports 400 disaster claims last year …

But are credit unions ready, willing and able to respond during a crisis and do they have business continuity and recovery plans in place to bounce back quickly? The statistics regarding disaster preparedness and recovery are almost as scary as the potential threats.

Last year, CUNA Mutual said it received more than 400 claims from credit unions for damage related to fire, wind, hail and water.

Unfortunately, only about half of U.S. businesses have implemented an adequate disaster recovery plan and more than 40% of businesses closed by a natural disaster never reopen, according to the U.S. Department of Labor.

Hunt pointed out that emergencies don't have to be Hurricane Sandy-sized to qualify as a disaster. Water main breaks or frozen pipes can put credit unions out of commission and in the crosshairs of regulators who have strict business resumption guidelines, he said.

Maintaining insurance coverage is a critical component of any disaster preparedness plan that is often overlooked by organizations, Hunt said.

Credit unions should review their insurance to determine if sufficient coverage is in place to repair damages, replace equipment and rebuild facilities, when necessary.

“You might have to find different ways to serve members such as bringing in a trailer or renting a space, which will mean you also have extra security costs,” he said.

Hunt said he has encountered many cases where credit unions suffered by having inadequate insurance.

Nearly 20% of cooperatives insured by CUNA Mutual are underinsured by at least 20% and almost 25% are over-insured by 20%, the agency said.

In one case, a credit union's two-story building was destroyed, but the institution did not have enough coverage to rebuild a facility of the same size, Hunt said.

“They were only able to put up a one-story building,” he added. “That's why it pays to review your insurance coverage on a regular basis.”

Determining the right deductibles is also imperative, Hunt said.

“Credit unions like the lowest deductible possible, which is understandable, but you have to consider a lot of factors,” he explained. “I've had credit unions executives that carried higher deductibles on their homes, than on their credit unions.”

Read more: Insurance best practices …

Credit unions should budget between $1 and $2 per member per year on disaster recovery solutions to offset their risk, Kirk Drake, founder/CEO of Ongoing Operations, a disaster recovery services CUSO in Hagerstown, Md., said.

“This more than pays for itself,” he noted. “The funds should be allocated between insurance, data backup, hot site and workspace solutions, business continuity plans, etc., based on a combination of probability and impact to determine whether they should spend more on insurance versus technology versus process.”

To lower premiums, Drake advised credit unions to focus on finding ways to remove single points of failure in the technology platform, ensuring FFIEC guidelines are followed and having a business impact analysis, risk analysis and plan, to figure out the best coverage.

Credit unions should closely review additional coverages included in policies for things such as debris removal or coverage for signs and landscaping, Rock Carter, president/CEO of The Rock Group, a vendor management firm in Salt Lake City, said.

“These generally can be good coverages, offered at a very reasonable cost by most credit union carriers, but you really need to understand what you have,” he explained.

Carter said credit unions that want to lower premiums can maintain higher deductibles, eliminate certain coverage, switch to a catastrophic or reinsurance option that only covers massive damage, or maintain self-insurance, which is a risky proposition and only appropriate if a credit union has adequate reserves for any possible loss.

“As with all insurance, it is good to strike a balance between the cost of the insurance and the likelihood of an insured event to occur,” Carter suggested. “It is all about your appetite for accepting risk versus sharing risk with an insurance provider and the potential impairment of your reserves due to a non-covered loss.”

CUNA Mutual advised credit unions on how they can adjust limits and deductibles to maximize and, in some cases, lower their premium dollars paid, Hunt said.

Cooperatives must draft business continuity and data recovery plans so they can continue to function and bounce back quickly after catastrophic events. He also advised credit unions to include all staff members in various phases of the planning process.

“Get the group together and brainstorm so you don't miss anything,” he said. “Employees are the most important asset of a credit union. So, protecting them must be a priority and one person can't think of everything.”

A communication plan is essential to reassure members, staff and other stakeholders.

“You also have to make sure that all employees know the details of the plan and what their role will be during an emergency,” Hunt said, who recalled an incident during Hurricane Sandy.

“All the executives and board members of the credit union were out of state at a conference when Sandy hit,” he said. “So, you have to make sure all employees know how to implement the plans.”

Credit unions should conduct fire drills, tornado drills and other preparedness training, Hunt said.

“If you have a plan, but you don't test it, then you really don't have a plan in place,” he cautioned.

Hunt also suggested that credit unions contact a local or regional disaster office, fire department and other agencies for disaster preparedness plans related to their area.