With a focus on sustainable growth, Cell Europe plans to incorporate new solutions and to continue to invest in providing innovation and protection for its customers. Vanessa Borges, Head of Financial Services, B2B and Risk of Worten and Paula Rios, Executive Director of HighDome pcc share the history behind this joint venture with FULLCOVER readers.
What made the MDS Group create a company like HighDome? Was that a common thing to do, back then?
Paula Rios (PR)
HighDome was really born by chance. I was in London with a colleague attending a training session on captive insurers which included a presentation on protected cell companies (PCCs), a type of company that allows you to create captive solutions for smaller companies. The structure seemed interesting, not just for MDS customers but for the wider Brokerslink universe. When we got back to Portugal, we presented the idea and were asked to come up with a business plan. A decision was quickly made to move forward with the project. The experience is really a great example of how new ideas and innovation are always welcomed at MDS. The group decided to establish a company in a format that was unusual in the European Union at the time, but one that was immensely flexible and capable of providing solutions to companies which, due to their size, would not be able to set up their own captive insurer.
Vanessa Borges (VB)
Worten has been selling warranty extensions since 2008, following an initiative by my colleague, José Vieira de Almeida, to provide a high-value-added service to customers, enabling them to safeguard their appliances beyond the legal warranty schedule. This service proved to be very popular with Worten customers. However, in 2011, the European Union created a task force to standardize the industry, defining a future framework for warranty extensions as an insurance product, posing a threat to Worten’s existing model. That said, the act of turning warranty extensions into insurance also created a new opportunity:
- We could also now sell related insurance products (for instance, warranty extensions plus damage & theft protection).
It was against this background that Worten approached MDS to investigate if there was a model where Worten could preserve its position in the value chain (product development, underwriting, pricing, in-store engagement) whilst guaranteeing compliance with European regulations. MDS responded in the same way it always does to a challenge: in the affirmative. It developed a solution that addressed exactly what Worten suggested - leading to the creation of a HighDome cell.
What is a Protected Cell Company (PCC)? How do they work?
PR PCCs are captive insurers and/ or reinsurers with a unique structure: a single legal entity with two separate share classes. You have core shares, held by the owner of the PCC (with HighDome, it’s the MDS Group) and cell shares, held by the entities that place their risk in the PCC. Each cell is completely independent of the core and the other cells. Cell assets and liabilities are protected from each other by law.
A PCC offers all the benefits of a pure captive, with the added advantage that required capital investment from cell holders is significantly smaller, as the minimum solvency requirements for an insurer are fulfilled by the PCC owner. Cells only need to meet the minimum solvency standard for the risk they take on.
In the European Union, this kind of company only exists in Malta. The concept is very innovative, and its structure highly flexible.
Tell us how the notion came about of creating a solution for Worten through a HighDome cell.
PR Worten had been an MDS customer for a very long time, and we knew them well. The type of warranty extension Worten offered customers as a service could also be turned into insurance. The advantage of doing this is that risk would not stay under Worten’s purview but be transferred to an insurer – a regulated entity that meets very strict liquidity standards, providing added guarantees for consumers. HighDome sees this as the kind of risk that best fits our subscription appetite, because we’re dealing with a large set of risks which are individually small, with no risk accumulation, and Worten manages their own risk painstakingly, ensuring claims control. So, we arrived at a solution that seemed advantageous to both parties.
What was the cell creation like? How long did it take? What were the main challenges you encountered?
PR It was a lengthy process that took several years to reach completion. It involved internal discussion and decisions at Worten and of course waiting for the insurance regulator of Malta to authorize the cell. The work touched on several areas: legal requirements, insurance processes, tax obligations, financial duties... Bit by bit, all the pieces fell into place, but I wouldn’t call it an easy undertaking. Once we got the green light however things turned out for the best.
VB Inception was a challenging process. From the original idea to the first sale, it took three and a half years. Several Worten teams got involved (including José Faria and his team), MDS (Tiago Mora, Paula Rios, and their team), and Sonae – particularly Joni Marques’s team.
The definition stage for the cell took about a year, from late 2011 through to late 2012. Four proposals were drafted and MDS, Worten and Sonae teams engaged. Topics such as what legal status Worten should sign up for (insurance mediator) were complex to broach. They evolved as proposals kept coming.
Once the cell was defined, we began the work of implementation between 2013 and May 2015. Several aspects had to fall in line – from the establishment of Cell Europe to more operational matters, such as the definition of sale and post-sale processes and technical solutions for each one.
At the end of the day, the decision to move forward (after an early-2015 pilot) was not an entirely risk-free one, as is always the case with major projects: the IT solution initially designed to address all HighDome’s reporting needs fell short of expectations and it took all of José Faria’s ingenuity to design and implement a tactical solution that enabled the project to roll out.
HighDome PCC, a company of MDS Group, is an insurance company, registered and established in Malta, created in 2011 and overseen by the Malta Financial Service Authority (MFSA) under the Companies Act Regulations 2004. HighDome is authorized to develop insurance and reinsurance business for risk such as accidents, land vehicles (own damage), commodity freight, fire, natural hazards, and other damage to property, diverse risk, and loss of business. The company derived its name from the high domes of Maltese cathedrals whose silhouettes form a striking part of the island’s skyline, and is intended as homage to the indomitable spirit and innate strength of the Maltese people who, in over 5000 years of history, have survived harrowing moments such as the Turkish siege of 1565 and Italian bombings during WWII. HighDome’s management team is comprised of professionals with vast experience in the insurance sector, both in underwriting and risk management at national and international level.
Worten is Sonae electronics’ retail brand. At its core, it is a digital company, but one with bricks-and-mortar stores and a focus on the human touch. Market leader Worten’s mandate is to bring the best technology (and more) to all customers, without exception. It now offers over six million products across diverse categories, providing the best prices and convenience for shoppers on- or off-line. In addition to appliances large and small, computer technology, telecommunications, sound, image, and entertainment, Worten is a national service leader, namely in repairs through the brand Worten Resolve; it also offers insurance cover so that customers can safeguard their purchases. Worten recently made a major push into toys, beauty products, health & wellness, sports, books, home & interior decor, DIY & gardening, and even pet products. Worten’s mission is to reassure customers that it sells everything - and more. With the largest e-commerce website in Portugal, plus 240 physical locations, Worten remains close to its customers, offering low prices, personal attention, product, and service variety. Everything is designed to meet their needs and expectations. Always.