Beyond the hype: risks and opportunities for insurers in the metaverse

The metaverse is more than just hype. In fact, the next internet era is unfolding in real time.

The metaverse will have a huge impact on the insurance industry as a virtual world where users share experiences, interact in real time and buy, sell and own assets. Some insurance companies are delighted by the prospect of blending the physical and digital to connect with customers in new ways and create new coverage products, while others are waiting to see how the metaverse changes customer habits.

Opportunities

Businesses and individuals are buying property, cars, furniture and artwork in the metaverse, selling branded digital goods and investing in metaverse-based digital customer experience development. As in the real world, all these things have insurable value, which creates tremendous opportunities for the industry to offer risk coverage for digital properties or in-game assets.

Carriers also can leverage the metaverse to attract young talent; to host engaging, immersive training sessions; to build new tools to help policyholders use the metaverse and mitigate risk; reach new customers with savvy advertising, and to extend their brand through a virtual place that draws repeat visits.

Risks

Every new opportunity has associated risks. Some of the greatest potential risks in the metaverse are contained in carriers’ current coverages, where carriers may unknowingly be insuring these new digital assets already.

Commercial cyber policies

The same potential losses and liabilities that exist in the physical world also exist in the metaverse, such as breach of privacy, hacking and ransomware attacks, and business interruptions. Even if the metaverse is not specifically mentioned in a policy, comprehensive coverage clauses typically include digital and data risks from digital platforms. A close read of the specifics of terms and conditions is in order, to answer questions such as:

• Does the definition or terminology used for computer systems cover losses and claims only from owned/controlled computer systems, or does it cover computer systems outside ownership control?
• If a policyholder’s metaverse store suffers ransomware or cyber vandalism, does the coverage include data restoration, ransom payments and business interruption losses? Depending on what is written, the policy may cover the loss in market value suffered by the virtual store.

Commercial and individual liability and casualty

Commercial liability coverage for discrimination, defamation, harassment and invasion of privacy would likely extend to metaverse-related claims, as would bodily injury such as headaches and other metaverse-immersion physical ailments.

Terms and conditions are attached to most non-fungible assets, and the NFT’s owner or issuer has the right to revoke usage if the terms and conditions are not met. This allows the issuer to protect their asset or brand. Loss due to violation of terms is a gray area and may or may not be covered.

If a personal asset purchased in the metaverse – for example, a luxury handbag for a metaverse avatar in Roblox, Sandbox or some other game – is lost to cybercrime, it potentially could be covered just like a non-digital asset stolen from a home.

Health policies

Obesity, musculoskeletal and cardiovascular complications are likely to increase, and mental health is likely to decrease as more time is spent in the metaverse. All of these are potentially covered claims. An avatar also can suffer digital injuries. Although this is less likely this to fall into current health coverage, it may be included in cyber and general coverages if the digital entity suffers harm.

Title fraud

Digital assets with fake titles are already a real problem and likely will be an ongoing concern. In a best-case scenario, blockchain-based transactions using a crypto wallet provide significantly more transparency than paper-based title transactions. In a worst-case scenario, scammers sell replicas of digital assets in the metaverse.

What to do now

The metaverse is not only 3D games with virtual and augmented reality, but the convergence of the digital world with the real world. Real people are shopping, buying, selling and socializing on a daily basis in the metaverse, and Citi estimates the metaverse economy will be $8 trillion to $13 trillion by 2030. Metaverse applications for mobile phones and laptops will increase in the near future, making them more accessible to people around the world.

As the digital and physical world increasingly converge, it is clear the metaverse is a real sales channel and carriers need a targeted strategy. Insurers should separate their digital and physical asset policy coverages and clarify what is and is not covered on these metaverse-based digital assets. Understanding what metaverse assets current and potential policyholders own will require a much deeper dive in the underwriting process to ensure these new risks are properly priced. Those who start their metaverse journey sooner will develop the data needed to get their pricing right much faster.

The industry participants who have made the biggest forays into the metaverse are the same enterprises that were early digital adopters — typically large carriers and insurtechs. Most of these players are starting small and leveraging third parties to accelerate the creation of their metaverse presence. By experimenting with the metaverse now, these insurers are gaining a strategic and tactical advantage over their competitors in discovering how to use this new customer service and sales channel. They are also getting a price advantage, as prices for land in the metaverse have increased dramatically over the past year.

Despite the early adopters, the insurance industry still has too many digital deniers who have not implemented a digital customer engagement platform or even moved to the cloud yet. They ignore the demographic shifts in the consumer markets and changes in distribution models at their own peril, stubbornly believing their traditional buyers will use traditional channels for future interactions. While some carriers focus on specific targets, the metaverse audience will be much more diverse, and the focus will eventually need to be much more inclusive, personal, entertaining and playful to reach this larger global audience. The longer you wait to begin experimentation with the metaverse, the more likely you will fall behind your competitors as they target the insurance buyers of the future, who find the metaverse exciting and inviting.

Dennis Winkler is director, ISG Insurance. He may be contacted at [email protected].

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