The metaverse is more than just hype. In fact, the next Internet era is unfolding in real time.
The metaverse will have a major 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 excited about 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 buy real estate, cars, furniture, and artwork in the metaverse, sell digital branded goods, and invest in metaverse-based digital customer experience development. As in the real world, all of these things have insurable value, creating tremendous opportunities for the industry to provide risk coverage for digital properties or in-game assets.
Carriers can also utilize the metaverse to attract young talent; to offer engaging, immersive training sessions; to build new tools to help policyholders use the metaverse and mitigate risk; reach new customers with smart advertising, and to expand their brand through a virtual location that attracts repeat visits.
Risks
Every new opportunity has associated risks. Some of the biggest potential risks in the metaverse are contained in carriers’ current coverages, where carriers may be unknowingly already insuring these new digital assets.
Commercial Cyber Policies
The same potential losses and liabilities that exist in the physical world also exist in the metaverse, such as privacy violations, 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. It is advisable to read the details of the terms and conditions carefully 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 of ownership control?
- If a policyholder’s metaverse store suffers from ransomware or cyber vandalism, does the coverage include data recovery, 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 will likely extend to metaverse-related claims, as will bodily injury such as headaches and other metaverse immersion physical ailments.
Terms and conditions are attached to most non-floatable assets, and the NFT’s owner or issuer has the right to revoke use if the terms and conditions are not met. This allows the issuer to protect their asset or brand. Loss due to breach 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 another game—is lost to cybercrime, it may 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 decline as more time is spent in the metaverse. All of these claims are potentially covered. An avatar can also sustain digital injuries. Although it is less likely to fall under current health cover, it can be included in cyber and general covers if the digital entity suffers damage.
Title fraud
Digital assets with false titles are already a real problem and will likely be an ongoing concern. At best, blockchain-based transactions with a crypto-wallet offer 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 just 3D games with virtual and augmented reality, but the convergence of the digital world with the real world. Real people shop, buy, sell and hang out in the metaverse on a daily basis, and Citi estimates the metaverse economy will be $8 trillion to $13 trillion by 2030. Metaverse apps 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 worlds increasingly converge, it is clear that the metaverse is a true sales channel and carriers need a focused strategy. Insurers must 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 into the underwriting process to ensure these new risks are properly priced. Those who start their metaverse journey earlier will develop the data needed to get their prices right much faster.
The industry participants that have made the biggest forays into the metaverse are the same companies that were early digital adopters—typically large carriers and insurtechs. Most of these players start small and use third parties to accelerate the creation of their metaverse presence. By now experimenting with the metaverse, these insurers gain a strategic and tactical advantage over their competitors by discovering how to use this new customer service and sales channel. They also get a price advantage, as prices for land in the metaverse have risen dramatically in recent years.
Despite the early adopters, the insurance industry still has too many digital naysayers who have yet to implement a digital customer engagement platform or even move to the cloud. Ignoring the demographic shifts in the consumer markets and changes in distribution models at their peril, they stubbornly believe that 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 ultimately need to be much more inclusive, personal, entertaining and playful to reach this larger global audience. The longer you wait to start experimenting with the metaverse, the more likely you are to 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 can be contacted at [email protected].
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