Chapter 11

Question 1

When setting continuity goals, what options should be considered regarding successors?

Answer 1

Internal or external candidate: Determining whether the successor will be an internal or external candidate
Passing company down to family: Arranging succession of the brokerage to one or more of the owner’s children
Successor selection during principal’s time: Selling the business during the principal’s lifetime to partners or partners’ children, a competitor or insurance company partner, or an interested affiliation member, if the business is affiliated
Management buyout: Organizing a management buyout if key people in the business have the talent and financial resources to purchase the business on reasonable and acceptable terms
Initial public offering: Taking the business public through an initial public offering, where family could continue to hold a significant stake but the company would be under professional management and control

Question 2

List the FIVE (5) key areas management takes into account for business interruption planning.

Answer 2

Emergency teams
Alternative premises
Public relations and communications
Insurance policies
Testing and review of the plan

Question 3

List FIVE (5) elements included in IT planning for disaster recovery.

Answer 3

Accessibility: Ensuring access to commonly used applications and programs within the brokerage management system (BMS) and the insurer portals
Maintenance: Maintaining or setting up alternative voice over Internet protocol (VOIP) phones
Assisting in enhancing telecommuting: During any office shutdown
Remote capabilities: Ensuring remote connectivity including broadening network connectivity to take any surge in offsite usage
Data recovery: Ensuring that data is being backed up regularly and that these backups can be quickly restored to alternative servers

Question 4

Application Question
Arthur wants to sell the brokerage he started 50 years ago. At 72, he recognizes he has put off succession planning for too long, and the risk of the continued viability of his company is high. He wants to arrange the sale now so he can do some travelling before he turns 75. The director of sales for his brokerage, Anita, indicates she would like to buy the company, and so Arthur and Anita begin to negotiate a fair price. They come to an agreement, and Arthur hires a lawyer to implement the sale of his shares so there are no issues with the agreement or with the other shareholders.

What would Arthur and Anita have considered when calculating the value of the brokerage?

Answer 4

Financial statements
Type of the book of business
Quality of the book of business
Current state of the insurance industry in their location
People employed

Question 5

Application Question
Arthur wants to sell the brokerage he started 50 years ago. At 72, he recognizes he has put off succession planning for too long, and the risk of the continued viability of his company is high. He wants to arrange the sale now so he can do some travelling before he turns 75. The director of sales for his brokerage, Anita, indicates she would like to buy the company, and so Arthur and Anita begin to negotiate a fair price. They come to an agreement, and Arthur hires a lawyer to implement the sale of his shares so there are no issues with the agreement or with the other shareholders.

What legal agreements will the lawyer draw up between the buyer and seller?

Answer 5

Purchase agreement
Buy/sell agreement: Requires the brokerage to purchase the shares of a deceased or disabled shareholder
non-competition agreement
Reciprocal buy/sell provision (also known as the shotgun clause): For use in the event of disagreement between shareholders resulting in the need to purchase the shares of the dissenting shareholder
Question 3
What other legal matters will the lawyer advise on? (5 marks)
Feedback
Duties: The roles and responsibilities of each partner or owner
Payment structure: How partners are paid
Share breakdown: Whether the brokerage may have different classes of shares
Succession planning: How the brokerage can address death, divorce, or incapacitation of the owner, partners, or major shareholders
Dissolution: How to dissolve the brokerage