Is it time to think about Insurance in the Metaverse?

If you’re into technology and current affairs, then you’ll probably be familiar with the term ‘metaverse’. However, like the majority of other people you probably don’t understand what it means. That’s because metaverse is in itself very difficult to define, given that it’s not a physical object and it doesn’t have a physical place or permanent location.

The metaverse in its entirety is not owned by an individual or business, but sections of it can be owned by individuals or businesses, much like the internet. Unlike physical land, the metaverse is not defined by borders or territories, you don’t need a passport to move across the metaverse, but certain areas may be restricted by others.

Given that the laws of physics also don’t apply in the metaverse, we should consider if one can even move across it at all.

Now before we get into too deep a rabbit hole, we should start by shedding some light on what the metaverse is by discussing a couple of definitions offered to Forbes in 2021.

According to this post by Cathy Hackl, defining the metaverse is not an easy task. Different people and industries define it in their own way which is certainly indicative to the nature of the metaverse – like art or music, it can be interpreted, experienced and defined through whichever lens is observing it.

In the post, Eric Redmond, Global Director of Technology Innovation at Nike states:

“I think the Metaverse is the all-encompassing space in which all digital experience sits; the observable digital universe made up of millions of digital galaxies”

Digital galaxies could be considered as the ‘normal’ technologies of today, such as the internet, social media, instant messaging, online shopping and online gaming. All of which have amalgamated into one bigger, more functional universe, known as the metaverse.

Neil Redding, Chief Executive Officer at Redding Futures adds:

“The metaverse is a digital space where you can create memories that rival physical experiences in scope, meaning, and value. It’s not about the best tech or creating the best simulation. It’s about enabling humanity to experience the things that make us human. Hyper social co-experiences where we can connect with each other in authentic ways.”

As humans, we’re always looking for new ways to connect and for new things to experience. Perhaps then the metaverse could be considered as that? The epitome of the hyper socialisation of the human race?

The consensus is that the metaverse should be considered as a social space. It’s a virtual environment within which anything that can exist in the physical world can co-exist. The metaverse gives users the ability to also create a new virtual existence which doesn’t just mirror reality, it enhances it. It’s a space for ownership, collaboration and revolution. It can be used personally and commercially. From a business perspective, the metaverse offers up opportunities for the commodification of data, be that in the form of virtual land, or virtual products which can be enjoyed within the boundaries of the metaverse.

Or most perplexingly, commodities which can be enjoyed across both the metaverse and the physical world. Non-physical products which are assigned a real world value.

Now we have attempted to give the metaverse a loose definition, we can start to understand just how insurance systems may be able to operate in this new sphere. The metaverse doesn’t just provide opportunities for insurers, it spans across the entire financial services industry. Let’s consider products like cryptocurrency and virtual mortgages, non-fungible tokens (NFTs) and credit. All of these things can exist within a virtual world whilst still having physical value attributed to them.

For businesses, existing in the metaverse could soon become the norm. In the same way it’s now considered bad practice to run a business without having a social media presence, it’s likely that the same notion will be adopted within the acceleration of the metaverse, even more so when you consider how social media has already become one of the metaverse ‘galaxies’.

Businesses using the metaverse to sell products, find marketing opportunities and engage with customers will one day become industry standard. It’ll be as normal as talking to your favourite supermarket on social media, the only difference is that within the metaverse, you’re not communicating with your favourite supermarket over a simple messaging platform, you’re actually communicating with your favourite supermarket from within a micro universe created by the business. This allows for greater opportunity for immersive businesses to custom communications and gives businesses the chance to market their products and services to customers in new and exciting ways.

Within the metaverse economy, ownership is set to be the key to success. Owning space and products within the metaverse will allow businesses to create their own micro universes in order to capitalise on metaverse technologies. We should now consider the link between ownership and risk and how the more someone owns in the metaverse, the greater the risk to them or their business. Let’s explore this notion a little further.

Owning land and property in the physical world comes with risk, that’s why businesses should consider insuring their property. If you spend £100,000.00 on a physical building then you will want to insure that building in case the unexpected happens and it gets damaged, or worse, it’s destroyed.

How does that translate into the metaverse? Metaverse land is equal in value to its physical counterpart, in some instances it may even me more valuable. According to Forbes, in 2021 the average price for the smallest available plot of land on two metaverse platforms was $1,000.00. A year later in 2022 that same area of land was worth, on average, $13,000.00. 

We know that the value of metaverse land and products is only increasing and therefore for a business which is serious about having a presence in the metaverse, getting set up could quite literally cost hundreds of thousands of pounds, especially if that business needs to purchase land, a building or other assets.

Because products are so expensive in the metaverse, if something was to go wrong with assets purchased by a business, all could be lost very quickly if the business hasn’t got the right insurance in place.

Businesses and individuals have the opportunity to buy products in the metaverse, these products could include costumes for avatars, vehicles to travel in or as mentioned a little earlier, non-fungible tokens (NFTs). NFTs are digital art pieces which are assigned real world value. The owner of an NFT owns the rights to it (authenticated through blockchain technology) much like they would if they purchased the rights for a physical piece of art.

Businesses and individuals would generally insure physical art against things like theft, as in the case the artwork is stolen, it would be very costly to replace it, if indeed it was even replaceable. The same goes for NFTs and other metaverse products, these are all items which can theoretically be stolen, lost, damaged or perhaps even illegally replicated. 

The metaverse is fast becoming a platform which facilitates vast financial transactions concerning the purchase of non-physical items. For example, metaverse builders can build a virtual house for someone to buy. Football teams can charge individuals for tickets to a virtual stadium in order to watch a virtual football match. It’s a complicated network which is very quickly turning into a marketplace for almost anything and as a result, the implications for the insurance industry are huge. Take the football ticket example – what if the game was postponed and the football team needed to issue refunds? In theory, insurance might be needed to cover that.

It’s not too difficult to predict what risks are present in the metaverse. This is because the metaverse is mostly a reflection of the physical world and therefore we can assume that on some level, the risks businesses face day to day in the physical world could also exist in the metaverse.

Cyber risk is perhaps the most prominent given the metaverses reliance on digital technologies. The metaverse also relies on the existence of physical hardware which has to be located somewhere in the physical world, and therefore any external risk to that facility should also be considered as a meta-risk too.

Bad actors or people who wish to cause harm present a major risk to the metaverse. Everything in the virtual world is exposed to the risk of cyber-attacks caused by malicious people or hackers. Cyber-theft and cyber-sabotage by third parties also presents risks to businesses in the metaverse. The nature of the metaverse also means it could quite easily become a breeding ground for scams, adding more complications for business owners.

The narrow bridge between the physical world and the metaverse means that disputes about intellectual property rights could become very real. The ownership of patents, brands and rights within the metaverse is going to be a key issue, one which is only made worse by the fact that the physical technologies the metaverse relies on also make theft and replication easier to action, and easier to get away with.

The physical risk of a hardware failure (due to technology, or a natural disaster for example) is one thing, but what about the physical risk of a person harming themselves or someone else in the physical world, whilst operating in the metaverse? Virtual reality (VR) headsets are a great example of this. What if someone exploring the metaverse in a VR headset trips and injures themselves at home? The liability will lie with someone and that someone could be a business owner who is trying to provide a product or service via the VR headset. 

Perhaps the biggest risk to businesses in the metaverse is the lack of legislation and local laws. There’s no real governance within the metaverse and although platform creators are able to set rules and conditions, the application of real world law in the metaverse is a very contentious subject. What laws should apply and who’s responsibility is it to enforce them when no borders exist?

Without legislation to protect users and businesses, it’s very difficult for insurers to be able to provide cover. Ultimately as a deregulated and decentralised space, it’s going to be very difficult for regulated industries to operate within the metaverse. 

Can I get business insurance in the metaverse?

The short answer, probably not, although insurers are certainly studying the area with a view to providing covers sometime in the future. The problem is, it’s not simple and actually working out how to regulate the insurance industry within the metaverse is a herculean task, one which doesn’t just rely on insurers. It’s going to need the involvement of regulators, legal experts and technology experts from all over the world, it’s collaboration on a mass scale.

Having said that, there’s clearly a need for businesses to be able to protect themselves in the metaverse and as more businesses enter the space, the actual implications of the risk involved will become more clear. It will take time but as that time passes insurers and regulators will start to learn more about how they can insure against meta-risks, and those cross world risks which have the potential to cause metaverse businesses some serious headaches.

The metaverse revolution is going to be very exciting to be a part of. It might all fizzle out into nothing, but then didn’t they say that about Google at the start too? The human race loves to embrace technology and it’s going to be very exciting to see how we integrate this technology into our lives and into our day to day business operations.