Disaster Preparedness Tips for CAT Planning

The United States is no stranger to natural disaster events. So far in 2021, severe drought, flooding, storms and wildfires have impacted the country in addition to the ongoing COVID-19 global pandemic.

In recent years there has been an increase in the frequency and magnitude of these natural disasters. According to the NOAA National Centers for Environmental Information, the U.S. has recorded $243.3 billion in damages the last three years (2018 to 2020), with 2020 seeing a total of $98.9 billion.

In the wake of these catastrophic events, the recovery process can take years. At the very least, catastrophic events tend to be followed by a six-to-nine-month tail regarding collateral damage. Proper preparation allows credit unions to perform damage control quickly, effectively and in compliance with applicable regulations.

This plan should consider all areas of your business, such as:

• Employees: Can employees get to work? Do you have alternative ways to get in touch with your staff members? Can your office remain open or can employees work remotely? Do you have access to adequate backup equipment to keep your business running? Did your response to remote work during the pandemic change how you will approach upcoming catastrophes?
• Data: Can data be accessed to continue managing the business effectively? Is your data backed up and secure? How will your data remain protected if damages occur?
• Service: If offices aren’t accessible, do you have a plan for continuing to serve your members? Have you informed your members about what’s going on and what they can expect?

It is important to evaluate how prepared your institution is in the event your property or members are impacted by a storm, hurricane, wildfire or flooding. While this is particularly pertinent for coastal establishments, any lending institution is at risk of being impacted by inclement weather, as your collateral may reside in any number of these affected areas. Developing a plan of action ensures your institution and members will not be completely caught off guard when it comes to communicating and taking the next steps.

Consider these three tips for best practices when it comes to catastrophe (CAT) planning.

1. Follow Event and Exposure Updates

Having access to the right kind of information during a national catastrophe will give you an advantage when managing your financial losses and internal operations before, during and after the catastrophe. There are several data sources that offer up-to-date information on hurricanes and other declared catastrophes. Many national catastrophe websites and blogs, such as Federal Emergency Management Agency (FEMA) bulletins, National Flood Insurance Program bulletins and the CFPB, among others, offer guidance to lenders. Additionally, working with a vendor can help reduce catastrophe-related loss exposure. These reports can include vital information such as:

• Catastrophe updates: Live updates relating to impacted areas all over the country, as provided by FEMA and other government agencies.
• Insurance and emergency bulletins: Information concerning topics such as repossession activity, total loss protocols, impound and abandon requirements, salvage requirements and changes, and overall financial loan balance exposure in a given area.
• tate event protocols and bulletins: Catastrophic event protocols and bulletins are shared by each state for lenders and insurers. These notices include temporary regulations, requirements and policy stipulations for areas impacted by storms.

2. Utilize Insurance Tracking Data

Insurance tracking provides financial institutions with a timely assessment of their exposure stemming from catastrophes, including but not limited to hurricanes, floods, wildfires, extreme storms and hail. Insurance information obtained by optimized tracking activity improves the efficiency and effectiveness of claim handling processes. After reviewing zip codes where a catastrophe has occurred, an exposure report identifying each consumer loan and property in an affected catastrophe area can help provide a thorough risk assessment for your institution.

3. Assess Collateral Value

Individual state regulations often cause lenders to incur extra expenses on impounded or abandoned collateral, and catastrophes only amplify this problem. Performing diligent inspections on all collateral can provide the data needed to determine whether it would be financially advantageous to secure or abandon each piece of collateral, significantly reducing this burden. Consider working with a vendor that will spend the time, money and resources to handle collateral recoveries in a compliant fashion so your lending institution remains protected against financial losses.

Communication Is Key

It’s important to create clear documentation that outlines a communication and action plan for employees and business partners in the event of catastrophic weather. By being proactive in data management, your institution can have an accurate sense of its risk exposure, as well as have information readily available to locate its collateral. Finally, don’t forget to communicate with your members so they are educated on what to expect and clear on next steps to take if their collateral is affected.

Tina Love Vice President of Claims & Recovery Allied Solutions Carmel, Ind.