Insuring the Metaverse: A Thought Experiment

Suddenly the metaverse is everywhere. Ok, the concept of the metaverse is everywhere – thanks to Mark Zuckerberg’s October 28 announcement that “Facebook” has become “Meta.”

Meta/Facebook is not the first company to start talking about the metaverse. There is a nine-part metaverse primer. NVIDIA is promoting its Omniverse which it says can create digital twins of manufacturing environments – and more broadly has described a vision of a “Future of Shared Worlds.” Game creators, gamers, and industry observers of massively multiplayer online games have their own view of the metaverse. And in case anyone is worried about being the coolest kid in the metaverse, Nike plans to outfit you, digitally.

There does not appear to be a common definition of the metaverse, but to this insurance analyst (firmly based in the physical universe), the key characteristics of current metaverse visions appear to include:

• There will be several metaverses (e.g. there could be one from Meta/Facebook, one from Fortnite . . . and a bunch more)
• In each metaverse, a resident/visitor can choose multiple environments, activities, and social groups: games, your town, any town, real or imagined locations (Hawaii or Planet 10), chats, concerts, sporting events, and . . .
• There is interoperability among the multiple metaverses. In other words, a visitor/resident of one metaverse, can take a good deal of his or her identity/identities, activities, relationships, assets etc. to other metaverses, and back again.
• Visitors/residents can have many avatars -- some that look like me, and some that look like how I would like to look.
• Many types of devices can access the metaverses, including virtual reality, enhanced reality, mobile device, pc’s.

Will the metaverse(s) happen? I don’t know.

But let’s do a thought experiment for how insurance might work in the metaverse.

First, back to basics. In the simplest terms, what does the insurance industry do? In return for the payment of a premium, insurers indemnify policyholders when specified losses occur. Note that even today, not all losses are physical – think of reputational damage coverage under cyber policies.

By definition, a metaverse is virtual, not physical. All the same, there are many types of assets which could exist in a metaverse:

• Crypto currencies (of course).
• In-game currencies (e.g. V-Bucks in Fortnite).
• In-game tools (Minecraft Tools).
• AND any virtual object that could be destroyed or damaged according to the controlling logic (and events permitted by that logic) in any realm of any metaverse, such as:
  • Automobile accidents, without or without personal injuries.
  • Fire, flood, earthquake.
  • Losses from lawsuits.
  • Illness.
  • Death.

You get the picture.

If the metaverse succeeds, in this thought experiment, some proportion of the visitors and residents will want to be in a metaverse that has possibilities of loss (as well as gain), and will have a sense of ownership, pride, and responsibility in their virtual assets . . . and will want to mitigate those losses through metaverse insurance.

What proportion? I have no idea. My guess is that the total addressable market of metaverse insurance will be a rather small portion of today’s physical world premium. Even so, a small fraction of 2020’s $650 billion net written premium and $12 billion in net underwriting profit might be enough to make insuring the metaverse interesting.