3 Risk Mitigation Strategies for Financial Institutions

 3 Risk Mitigation Strategies for Financial Institutions

Post-Pandemic Growth Series [Part 3]: 3 Risk Mitigation Strategies for Financial Institutions 

August 19, 2020 | Produced by Anne Holtzman, Senior Vice President of Claims & Recovery

View Part 1 here: Tips to Protect and and Grow Your Loan Portfolio Beyond the Pandemic

View Part 2 here: 3 Considerations as Things Return to 'Normal'


COVID-19 continues to introduce new challenges for businesses and consumers. While the second quarter saw small gains in economic recovery, market conditions and unemployment continue to remain depressed compared to previous years. However, historically low interest rates suggest loan yields will increase and, in turn, provide an opportunity for financial institutions to capitalize in this low-interest lending environment.

While the overall long-term impact remains unknown, it’s critical financial institutions are not just thinking about immediate consumer and business needs, but adopting innovative solutions and adjusting long term to solve challenges brought on by the pandemic. There’s a growing need to readdress a comprehensive risk strategy in order to evaluate how challenges brought on by COVID-19 can be handled in 2020 and beyond.

Risk Mitigation Strategy #1: Monitor Your Portfolio 

The industry is rapidly changing with updated regulatory guidelines, state mandates, and COVID response protocols. There are many moving components to monitor to ensure portfolio information is accurate and compliant.

Why loan monitoring is important for financial institutions: 

  • It increases service flexibility: The coronavirus pandemic has triggered the need for more flexible servicing and liquidity management. Service changes and disruptions – such as increased withdrawal limits, payment deferrals, and loan modifications for consumers – contribute to reduced cash flows for financial institutions and make portfolio management a critical aspect in decision-making. Loan monitoring is an important component in assessing portfolio risk and helpful in determining how financial institutions can provide ongoing, flexible service options for their consumers.
  • It provides accurate risk data: With the ongoing economic uncertainty, being able to assess your level of risk accurately is becoming paramount. One emergent trend throughout the pandemic has been increased consumer migration leading to inaccurate location data. Leveraging data can help shape a proactive approach to monitor your portfolio and risk. 


Risk Mitigation Strategy #2: Diversify Your Loan Services

Due to the delayed and unknown financial impact from COVID-19, there’s an amplified need for a long-term strategy to manage coming challenges. There are many available consumer-focused solutions that can assist financial institutions with restarting their loan engine to take advantage of anticipated and changing consumer needs. However, in order to evolve, financial institutions need to think creatively about how they reach, engage, and communicate with their consumers. This could mean expanding digital tools or providing more online banking solutions to increase ease of access. 

Why it’s important financial institutions diversify their loan services: 

  • It supports consumers’ financial needs: Consumers will need help in the coming months as they reevaluate their finances and debt load. This may include seeking lower loan payments, deferring payments, or seeking to refinance. Establishing processes and solutions that are easy to use and cost efficient can help your financial institutions sustain a high volume of requests and support your consumers.
  • It streamlines loan operations: Outsourcing some operational areas can help enhance operational efficiencies and better meet consumer demand. There are options to redelegate human resources with additional call center support, or outsourcing services to help relieve current employees' regular day-to-day workload. 
  • It enhances consumer service: It is prudent for financial institutions to have alternative, sustainable ways to serve their consumers at this time. Digital and mobile technologies have rapidly emerged as an important way to continue to meet these service demands. These options can include email, video and text messaging. Some solutions also empower consumers to monitor their finances with self-service options. 

Click Here to Download the Whitepaper: From Afterthought to Strategic Approach: Managing Ancillary Product Refunds” to learn more about the importance of optimizing the product refund process at your institutions

Risk Mitigation Strategy #3: Understand Your Risk

COVID-19 changed how our industry should evaluate risk. Financial institutions need to reconsider how best to manage risk in remote work environments and online business transactions. Staying informed on the latest risk trends, tips, and solutions can help prepare your organization to optimize your recovery programs in order to better mitigate losses during and after catastrophic events.

Why proactive evaluation is important for financial institutions:

  • It helps plans for economic uncertainty: With untested long-term consequences of payment deferrals, loan extensions, and other short-term relief accommodations, it’s important to adapt risk management processes to address future increases in delinquencies and deficiency balances. Financial institutions should develop a recovery process that is flexible, compliant, and effective to prepare for known and unknown risks.
  • It helps address fraud vulnerabilities: Financial institutions and consumers are facing scam attempts during the pandemic, including increased phishing attacks, ID theft, and unemployment fraud. Staying on top of fraud trends and prevention methods is important to helping staff and consumers know what to look for and what to do to protect themselves.
  • It creates consideration for alternative funding opportunities: Sound liquidity management needs a diverse mix of funding sources. Now is a time for financial institutions to think about revenue and funding streams. Options such as, corporate or bank-owned life insurance policies help provide benefits funding, non-member funding provide additional community-wide opportunities, and additional lending products and services can help diversify a portfolio.

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The pandemic continues to be challenging and uncertain from day to day, week to week, and month to month. It’s caused many financial institutions to adapt and be flexible with the changing times as we look forward and anticipate how changing consumer needs can be met and solved. 


About Allied Solutions

Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology-based products and services customized to meet the needs of 4,000 clients, along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 16 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.


Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.

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