As metaverses take the internet by storm, Insurance Times explores whether the insurance industry can capitalise on covering risk in digital worlds
Metaverses are growing at a rapid pace. This marketplace, which was worth around $21.91bn (£16.1bn) in 2020, is predicted to grow at a 41.7% compound annual growth rate between 2021 and 2030, according to data published by market research firm Market Research Future in December 2021.
The Metaverse. Web 3.0 Virtual Cloud Economies report, published by crypto asset manager Greyscale in November 2021, stated the metaverse market is also estimated to be worth over $1tr in future annual revenues.
Despite the vast opportunities for revenue in this sector, however, the insurance industry currently lacks innovative solutions to cash in from this latest tech trend.
But, “pioneering brokers” are set to ”carve out a significant share in what’s likely to be an equally significant market”, said Concirrus chief executive Andy Yeoman.
The metaverse, broadly speaking, refers to a space online where people can interact in a more immersive way versus a traditional website – this could be through using an avatar in a virtual environment, or via a virtual reality (VR) headset.
There are also blockchain-backed virtual worlds, like Decentraland, which use the same technology as cryptocurrency, where users can buy digital assets such as land.
Decentraland is recognised as a Web 3.0 approach to the metaverse – much like The Sandbox, Somnium Space and OVRLands. Web 3.0 refers to the next iteration or phase of the evolution of the internet.
In Web 3.0 metaverses, digital assets are owned and authenticated through non-fungible tokens (NFTs).
NFTs are paid for by cryptocurrencies like Ethereum (ETH) and can be transferred on the blockchain to other metaverses.
Digital developers and content creators can earn revenue directly from sales of digital assets, as well as royalties, which are received via secondary trades of NFTs.
The market cap for NFTs currently sits at $41bn, as stated by Bloomberg in January 2022.
The previous internet generation, Web 2.0, includes metaverses such as Second Life, Roblox, Fortnite and World of Warcraft.
Verlingue UK corporate client director Lee Downs anticipates that “just as with the internet and social media, the metaverse will become the norm in which all industries, including insurance, will have to engage with to remain current”.
Therefore, to become pioneers in the metaverse market, “brokers [will] do best where they have a clear understanding of the market they are serving, can identify the risks that their clients wish to transfer and are supported by an insurer base that has products to sell”, added Yeoman.
There is one issue, however – insurance for the metaverse market is yet to exist.
Is metaverse insurance needed?
For Ed Halsey, chief operating officer at broker Hubb, many of the issues in the metaverse so far do not actually need to be solved by insurance.
He explained: “With the space being so immature and evolving rapidly, particularly in terms of [a] legal precedent needing to be set that determines the depth of our exposures, launching a product now would be a bold move. But fortune favours the bold and making an early land grab will seem appealing to some.
“However, the reality is that many of the issues we’re seeing early on in the metaverse do not need to be solved by insurance.
”Just because there is potential liability doesn’t mean we need to throw an insurance product at it. Rather the metaverse needs to - and I’ve no doubt it will - evolve to mitigate this risk and prevent it happening in the first place.”
Freedom Services Group chair Sam White, on the other hand, said the insurance industry needs to be prepared to cover losses around emerging risks that haven’t yet been considered.
One potential issue, for example, is “the issue of quantum and causation” because “digital assets are by their nature volatile, so trying to correctly value a loss will be extremely challenging”, she said.
To manage this risk, parametric policies will be the “only plausible solution in the short-term”, she added.
White further highlighted that there have been allegations of sexual assaults and intimidation in the gaming community.
She said: “If you are assaulted in a virtual world, it can have the same psychological impact, even if you are not physically in the same room.
“There’s also the risk of digital theft. I’m aware that on kids’ games, people can steal items that have been earned by other players.”
To provide some perspective on the quantity of digital assets currently in the metaverse, virtual fashion brand RTFKT Studios, in collaboration with 19-year-old crypto artist FEWOCiOUS, generated a seven minute, $3.1m sale of virtual sneakers in February 2021.
Considering theft, one gamer revealed in January 2022 that he had spent £10,000 on a tract of virtual land in The Sandbox, which was then stolen and sold for £23,000, according to The Sun.
Brokers can already get ahead of the game when it comes to insuring the metaverse, however. Downs said that most of the key covers relevant to the metaverse are already in place – such as professional indemnity, cyber, crime and intellectual property (IP). But “adapting these to fit the emerging risk will be the key”, he added.
Downs further noted that increased data use associated with metaverses - with new ways for data to be transferred and stored, jurisdictional differences, IP ownership and how virtual assets are viewed and insured - will be “really important in protecting against hacking a theft”.
Questions concerning insurance for metaverses include:
- Will people be able to own virtual properties within the metaverse that they can rent out on a commercial basis?
- Will insurance cover this type of risk under a property policy with a cyber clause, or under a cyber policy with a property clause, or a bespoke hybrid policy?
- How can insurers mitigate against potential new ways in which deepfaking - editing a virtual medium like video to replace the original person with someone else - an individual’s avatar becomes an avenue for defrauding them out of their data and money?
The good news in terms of assessing risks is that the metaverse is, by its very nature, “replete with data”, said Yeoman.
He continued: “Unlike the physical world where the absence of absolute data [has] led to the creation of proxies for the risk written, the metaverse should provide an excess of data.
“The challenge is creating the infrastructure and capability to gather and process that information and develop predictive models.”
While this type of infrastructure is yet to come into fruition, Halsey highlighted that insurance specifically for metaverses “will prove, for many, too great an unknown at this stage”. But, there is room for conducting trials, which may get the ball rolling.
He explained: “Perhaps anticipate low limit, single occurrence policies to enable insurers to test the market - albeit likely a specialist insurer [that] sees an opportunity to leverage it to cross-sell other products, such as cyber insurance.
“We may, over time, even see this as an extension to existing business policies as opposed to standalone coverage.”
Broker Hubb has even started to dip its toes more fully into metaverse waters by hosting regular global staff meetings using a virtual reality workspace for teams called Horizon Workrooms.
“The ability to get everybody ’face-to-face’ and working alongside one another is a huge opportunity that we’d have been doing ourselves a disservice not to explore,” Halsey said.
“Learning through osmosis is one of the biggest things we lose out on by [remote working] and that has put a huge burden on the onboarding process.
“For more traditional businesses, [metaverses have] the potential to be truly transformative. It also means you don’t have to ever get out of your pyjamas.”