CUNA Mutual's Tab For Hurricanes: $27.5M
CUNA Mutual Group estimates the tab for Hurricanes Katrina, Rita and Wilma will be $27.5 million in claims filed by credit unions alone-and that doesn't even begin to measure some of the uninsured and hidden costs such disasters bring.
NCUA reports that all of the credit unions affected by the various storms are back in operation, but many of them, particularly those hit by Katrina, are still operating out of temporary facilities, and credit unions are still waiting for two very urgent supplies: employees and members.
"One of the biggest challenges being faced by credit unions and other businesses in New Orleans is staffing," said Louisiana Credit Union League EVP Connie Major. "Credit unions here are still waiting to see if their employees and their membership will return."
This is one aspect of disaster planning that is often overlooked.
"Most disaster plans assume that although employees will need to look after their own homes and families first, they're going to be there," said Scott Earl, who is coordinating CUNA's disaster relief efforts. "Staffing is a major concern. You can't open a credit union without employees to run it. One thing credit unions are struggling with is if they have a branch that cannot be opened, do you continue to pay the employees who can't work as a result? And if you don't pay them, how do you keep them around once you are able to reopen that branch?"
And waiting for members to return, particularly in New Orleans, exacerbates other costs.
"There's a lack of business because the members are not around, so there's a drop in revenue," Earl observed. "Plus, credit unions are waiving fees, they're extending loan payments. There's a cost there that could balloon into a greater cost, because it means it will be some time before a credit union has a handle on who is going to be able to pay them and who isn't, since they've extended those payments. They're waiving interest. There's a decrease in lending and the loss of collateral, as well. All of these are costs to the credit union that build up over time."
Then there's the cost of relocating.
"There's one credit union that's been working out of the hotel room where the manager evacuated, and I'm sure that's not a cost that had been planned for in the disaster recovery plan," Earl noted.
The View From The Veterans
Although Florida was spared the full brunt of Katrina's and Rita's wrath, having gone through Charley, Frances, Ivan and Jeanne last year and most recently Wilma this year, the state league has become something of an expert on hurricane recovery.
"Typically a credit union will have insurance for the building, but if they are unable to operate out of that building, then there are the extra costs of having to operate out of another facility," offered FCUL Spokesperson Mark Ivester. "You've got to run the extra data lines, you may even have rent, and those are costs that may not be covered by insurance unless they've got a rider for that."
But insurance does cover many expenses, and CUNA Mutual Group has stepped up to the plate. The insurance company has estimated credit union damage from Katrina, Rita and Wilma to total about $27.5 million. Of that, Katrina makes up $23 million, with $4 million chalked up to Rita and $500,000 to Wilma, although that latter figure could rise since the storm was so recent.
"Reinsurance will cover about $12 million of those losses, so the net cost to CUNA Mutual is about $15.5 million," said CMG Spokesperson Phil Tschudy. "Katrina represented the highest single catastrophe loss in CUNA Mutual's history. However, we manage our business in a way that enables us to support customers in exactly these types of situations and not undermine our overall financial strength. CUNA Mutual has measures in place to protect the company financially when catastrophes occur. As an insurance company, we expect-and price for-these types of events."
As credit unions reevaluate their disaster recovery plans and their insurance, new costs may abound.
"Going forward, credit unions are looking at flood insurance, for example, and shared branching, and those are costs they may not have planned for," Earl observed.
So, in addition to the big question that particularly has plagued New Orleans credit unions-will the members return, and when-is the bigger question for the movement: how many credit union will survive?
Mergers & Liquidations
"There probably will be some mergers and liquidations, and there have been some discussions about that," Earl noted. "NCUA is meeting with credit unions in New Orleans later this month. As credit unions sit down and look at where their members are and the losses they have incurred and then see where they really stand, that question will start coming into focus."
Many credit unions will be in a position to weather the aftermath of these storms, but some won't. "There's this one, small credit union in New Orleans that is still using a DOS computer system, now I don't know if that credit union will survive or not, but the point is, some of these credit unions were marginal before the storm," Earl explained. "Those are the ones we're worried about."
Earl, best known in credit union land for his previous job as head of the Utah League of Credit Unions, said he is happy to be back in the movement, but coming back specifically to deal with these catastrophes has taken its toll. Earl accompanied CUNA President Dan Mica on a tour of New Orleans led by the Louisiana Credit Union League, whose own offices in Harahan, La., are still not open.
"You see the images on television and in print, and you think you are prepared for it," he related. "And then you go see it in person. It's not the devastation itself that was a surprise, it's the scope of it. When you realize what a tremendous challenge it is going to be to rebuild [New Orleans], it's just overwhelming."
"Because Hurricane Katrina was like no other natural disaster that we have ever faced, displacing over a million people, it is too early to tell what Hurricane Katrina will actually end up costing," LCUL's Major concluded. "Many credit unions, especially those in the hard hit areas of New Orleans, are just now, nine weeks after the storm hit, beginning to return to their facilities. And, with so many credit union members still displaced it may be many months or years before we learn what the true cost of Katrina is in terms of field of membership and lost employees."
COST TO CUNA MUTUAL FROM 2005'S HURRICANES
Hurricane CUs Damaged Number of Locations Cost
Katrina 116 257 $23 million
Rita 35 70 $4 million
Wilma 10 n/a $500,000
Total 161 327 $27.5 million
Costs covered by reinsurance: $12 million
Net cost to CUNA Mutual: $15.5 million
Source: CUNA Mutual Group