Insuring the Future: The Metaverse Has Entered the Chat

The digital and physical realms are converging in unprecedented ways, and nowhere is this more evident than in the metaverse. This virtual space, once reserved as the playground of gamers and tech enthusiasts, has evolved from a sci-fi concept to a bustling digital economy. As a result, insurance companies are jumping in by offering coverage for virtual assets and activities as they suss out their roles in this new digital economy.

It’s clear that the industry already understands the immense potential of the metaverse. AXA has been there for some time, offering coverage for digital assets like NFTs, virtual real estate and even avatar identities. State Farm has dipped their toes in, and financial giants like J.P. Morgan and HSBC have established virtual presences in platforms like Decentraland.

This shift, which started back in 2022, signified a broader acceptance and integration of the metaverse into traditional financial and insurance services.

The financial implications of insuring the metaverse are staggering, and the stakes are high. According to BCG Global, revenue from blockchain and metaverse-related services in the insurance sector is projected to skyrocket from $425 million in 2022 to roughly $37 billion by 2030, a compound annual growth rate of 70%. That dramatic growthunderscores the very real value of digital assets in the global economy.

Navigating New Risks

With significant economic activity now taking place in the metaverse—from commerce to real estate transactions to social interactions—new risks are emerging. Virtual theft, data breaches and reputational damage in that space are pressing concerns for users and businesses alike. Insurers are stepping up to address these risks with policies that cover everything from the theft of digital assets to compensation for disruptions in virtual environments.

But insuring virtual assets is not without its challenges. Insurers face the daunting task of assessing the value of virtual goods, determining jurisdiction in a borderless digital space and navigating the nascent legal frameworks of virtual worlds. These challenges require innovative approaches and a readiness to adapt to rapidly evolving digital landscapes. Generali recommends insurers learn to help people navigate the risks by getting hands-on experience there.

One of the most fascinating developments in this space is the use of digital twinning, which involves creating precise digital replicas of physical properties, allowing insurers to simulate and analyze risks under various scenarios. It allows them to bridge the gap between the physical and virtual worlds they insure, but it’s also a significant innovation in how insurers assess and mitigate risk.

In the metaverse, the landscape of potential claims is as varied as it is novel, reflecting the unique nature of virtual environments. Claims could stem from cyberattacks that compromise digital assets, data loss due to technical failures, and disruptions caused by glitches in the virtual ecosystem.

For example, if a user’s NFT is stolen or their virtual property is damaged in a security breach, insurance policies could step in to provide compensation. Just as in the physical world, events in the metaverse—like virtual concerts or digital art exhibitions—might necessitate event cancellation insurance to shield sponsors and participants from financial losses if the event becomes inaccessible.

The Bigger Picture

The expansion of insurance into virtual spaces signifies a broader shift in how we perceive value and risk in an increasingly digital world. It reflects the growing recognition of digital assets as legitimate, valuable properties deserving protection, and as insurers keep adapting to these new realities, they’re poised to redefine their value propositions and operational strategies alongside them.

For insurers, the move into the metaverse is more than just a new revenue stream; it represents a strategic opportunity to influence the development of regulations and set industry precedents in an emerging market, similar to the internet boom of the 1990’s. Many engaged early, right after Facebook became Meta, and those that did are shaping the future landscape of digital asset protection, ensuring that their companies evolve in tandem with the metaverse itself.

As younger generations spend more time in virtual worlds, the demand for insurance products that protect digital assets will only grow. Insurers are already exploring new ways to engage with Gen Alpha, who are digital natives, offering innovative products and services tailored to their needs.

The metaverse is not just a new market—it’s a new way of thinking about value, risk, and protection for generations who have grown up in the digital age. As this space evolves, the new insurance products and services that are developed will influence the architecture of virtual economies. The potential is enormous, and the implications are profound, signaling a transformative period ahead for insurers and consumers alike, as we all adjust to modern life and commerce.

Gregg Barrett is founder CEO of Waterstreet Co., a group of property/casualty insurance industry experts based in Kalispell, Montana focused on optimizing operations for carriers, MGA’s, Insurtechs and startups.