The metaverse presents opportunities for insurers: PwC

Summary

The metaverse offers insurance carriers promising opportunities to identify and mitigate risk.
Increasing metaverse use is resulting in emerging customer risks that insurers can cover with new or modified products.
Metaverse skills are in high demand and carriers need to determine how to effectively develop and acquire them.
With input from the business and customers, management can determine the most appropriate metaverse technology platform.

The metaverse presents new opportunities for insurers to engage with customers, develop new business and risk strategies, and offer innovative coverages and products. As the line between the physical and digital worlds continues to blur, insurers must be prepared to do business in this "phygital" environment and take advantage of its potential.

By investing in the metaverse and utilizing its unique capabilities, insurers can enhance their operations, improve customer experience, and address emerging risks in this rapidly growing space. Whether via using avatars for training and customer support, creating digital twins for property underwriting, or offering coverage for digital assets, the metaverse is a new frontier in user experience and risk coverage.

An increasing number of carriers have reached out to us to determine how they can most effectively invest in and use the metaverse. Looking across the insurance value chain, we see the metaverse providing two broad opportunities for insurers:

Next generation engagement with employees, customers and other stakeholders. The metaverse already has a variety of commercial applications being piloted, notably as an immersive tool that practically any industry can use to enhance operations and business. For carriers, there are immediate and promising opportunities in underwriting and claims, as well as in internal and external engagement such as training, coverage and benefits education, risk mitigation and customer support.
Covering emerging risks in the metaverse with new or modified products. Increasing metaverse use is leading to greater ownership of different forms of digital assets such as NFTs, virtual real estate and avatars. This is creating new risks, a pronounced protection gap and a resulting need for coverage. As of now, insurance coverage of digital assets is inadequate and expensive. Metaverse investors, buyers and creators need economical and effective protection from potential financial loss, liability and loss of use. Fortunately, there are immediately practical ways carriers can meet these needs and create new revenue streams.

70% of insurance executives say they have a good or detailed understanding of the term “metaverse,” most often viewing it as a virtual space to engage with others.

Source: PwC 2022 US metaverse survey

Next generation engagement

It is already possible for insurers to use the metaverse to bridge the digital and physical worlds in several areas. While some of them — notably marketing, branding and customer engagement — are pertinent to all industries, others are novel to insurance.

Customer and employee engagement	Underwriting	Claims
For employees — particularly of a dispersed workforce — using extended reality (XR) and immersive 2D to conduct interpersonal and soft skills training for brokers, agents and client service staff, utilizing avatars and various immersive scenarios. Offices in the metaverse enable employees and clients to collaborate, share ideas, conduct job interviews, assist in onboarding, provide training and manage performance with a more personalized and personable experience while saving time and resources.*	Inspect a physical property by viewing a mapped digital twin of its infrastructure in the metaverse and assess risk by visualizing its real-time health and performance and training underwriters on how to inspect properties for damage via the metaverse in a low-risk environment therefore allowing for better risk management and mitigation practices.	Use virtual reality (VR) to train claims representatives for home damage assessments where they navigate an intuitive learning course with hundreds of realistic damage combinations and scenarios, thus helping to reduce error rates and better understand risk and damage assessments, all in a controlled environment. This application also can help assess risks and process claims more quickly and accurately, resulting in more timely and accurate claim payouts.*
For customers in particular, a metaverse concierge: a personalized immersive experience of a carrier’s or agent’s “office” that enables customers to interact with an avatar rather than a website or an app, thereby providing a more personal digital experience with an “in-person” meeting to get support during purchase, policy servicing and claims.	Use a Metaverse overlay of a digital twin on a real-world property so underwriters and inspectors can determine with workers in real time improvements/repairs necessary to obtain, retain or lower the cost of coverage for policyholders and potential future claims for carriers. This application also can help determine more accurate pricing for underwriting and risk management/mitigation, as well as facilitate underwriter training by enabling risk-free experimentation.	Use detailed, interactive 3D models that claims assessors can review anywhere to virtually walk through an incident scene to determine damages, re-create and simulate incidents for assessments and training, and service claims faster.* This application also has the promise to identify risks in real time and prevent loss incidents altogether. Also of note, a full-time connection is unnecessary, as IoT sensors map to the digital world.
*Already at or beyond the proof of concept stage

Customer and employee engagement

Underwriting

Claims

For employees — particularly of a dispersed workforce — using extended reality (XR) and immersive 2D to conduct interpersonal and soft skills training for brokers, agents and client service staff, utilizing avatars and various immersive scenarios. Offices in the metaverse enable employees and clients to collaborate, share ideas, conduct job interviews, assist in onboarding, provide training and manage performance with a more personalized and personable experience while saving time and resources.*

Inspect a physical property by viewing a mapped digital twin of its infrastructure in the metaverse and assess risk by visualizing its real-time health and performance and training underwriters on how to inspect properties for damage via the metaverse in a low-risk environment therefore allowing for better risk management and mitigation practices.

Use virtual reality (VR) to train claims representatives for home damage assessments where they navigate an intuitive learning course with hundreds of realistic damage combinations and scenarios, thus helping to reduce error rates and better understand risk and damage assessments, all in a controlled environment. This application also can help assess risks and process claims more quickly and accurately, resulting in more timely and accurate claim payouts.*

For customers in particular, a metaverse concierge: a personalized immersive experience of a carrier’s or agent’s “office” that enables customers to interact with an avatar rather than a website or an app, thereby providing a more personal digital experience with an “in-person” meeting to get support during purchase, policy servicing and claims.

Use a Metaverse overlay of a digital twin on a real-world property so underwriters and inspectors can determine with workers in real time improvements/repairs necessary to obtain, retain or lower the cost of coverage for policyholders and potential future claims for carriers.

This application also can help determine more accurate pricing for underwriting and risk management/mitigation, as well as facilitate underwriter training by enabling risk-free experimentation.

Use detailed, interactive 3D models that claims assessors can review anywhere to virtually walk through an incident scene to determine damages, re-create and simulate incidents for assessments and training, and service claims faster.*

This application also has the promise to identify risks in real time and prevent loss incidents altogether. Also of note, a full-time connection is unnecessary, as IoT sensors map to the digital world.

*Already at or beyond the proof of concept stage

These early forays into using the metaverse to address long-standing operational challenges show real promise to improve how carriers do business. In addition, by actively using the metaverse, carriers can better understand how it operates and the business opportunities it may offer. However, these efforts have been limited and no company has a pronounced early mover advantage. Accordingly, prescient insurers are already experimenting with and testing virtual options in a low-pressure environment to gain a competitive edge, before metaverse use becomes more common.

Just over half of insurance respondents have made VR, augmented reality (AR), mixed reality (MR) and simulation modeling part of their strategy or moved beyond proof of concept, approximately the same as the all-industry average.

Source: PwC 2022 US business digital assets and metaverse survey

New risks

Beyond practical business applications, the metaverse’s increasing popularity is creating a variety of emerging risks that have real-world monetary and human implications. Very few of these risks are currently covered, leading to a significant protection gap. This presents insurers an opening to create products that protect both people and assets in the real and virtual worlds. Metaverse-specific risks include:

Accidental loss. Problems with metaverse event programming, technology capacity and constraint, loss of network and service outages can cause financial loss to users, platforms, brands, companies and event promoters.

Criminal and malicious behavior. These are similar to more conventional cyber risks but differ when assets are in the virtual world.

Financial fraud. Fake virtual real estate, illegal fundraising and other illicit activities with cryptocurrency leading to financial loss.
Hacking. Hacking to steal or vandalize VR equipment, personal/avatar data and other virtual assets.
IP theft. Theft of avatars (i.e., identity theft) and deep fakes (which can damage personal/institutional brands), theft of virtual real estate and other digital assets, as well as copyright violations causing financial loss and loss of faith among buyers, owners and creators.
Physical and mental harm. Online harassment, trolling and toxic behaviors leading to PTSD and other mental and emotional anguish.
Privacy. Data breaches leading to financial and emotional turmoil.
Security/malware. Data security/privacy breaches of digital buyers, sellers and creators, creating the risk of scams, theft and fraud.

27% of insurance respondents say they have at least one promising proof of concept and are looking to scale or are already generating revenue from metaverse transactions.

Source: PwC 2022 US metaverse survey

The protection gap: practical entry points for insurers

It will take time to adequately assess and price many of the above risks, but there are currently three realistic entry points for insurers:

1. In-metaverse digital assets. NFTs, avatars and virtual real estate (which in an open metaverse also are NFTs) are prominent digital assets. Although virtual, they do have monetary value, and their owners need protection against loss. Moreover, because these assets use blockchain for verification and typically do not run through traditional institutions, they are difficult to recover if stolen. In fact, there currently is no recourse in the metaverse in case of hacking, discontinued user access or fraud unless centralized entities are involved.

Virtual real estate faces the same risks of theft and hacking, as well as risks of cybersquatting and vandalism. Moreover, because its setting is decentralized and transactions are final and user-managed, virtual real estate is an irretrievable asset unless it is a centralized entity. As a result, buyers can experience financial and reputational damage, mortgage lenders can lose revenue, and platform players may face lawsuits seeking compensation from both groups.

2. Events and entertainment. Several well known celebrities, brands, restaurants and sports leagues/franchises have hosted concerts, music listening parties, fashion shows and other events in the metaverse. The number of events and attendees is increasing, leading to greater risk potential related to event cancellations, delays or quality, and attendee health and safety. For example:

Event liability/cancellation. Some concert attendees have experienced poor onboarding and technical difficulties when event platforms have not had space to accommodate large numbers of attendees. For paid events that have been seriously compromised or canceled, attendees would likely welcome insurance to reimburse ticket charges, and event organizers would likewise welcome coverage to recover event costs.
Liability arising from user safety. There are known cases of virtual groping and verbal harassment in the metaverse, leading to anxiety and PTSD. We are aware of at least one victim being unable to quickly report the harassment via metaverse platform tools and only finding relief by taking off her headset and leaving the platform.

3. Intellectual property and brand. Anything that can be created, purchased, sold or traded in the metaverse is at high risk of theft. There’s also a high risk of infringement and misuse of celebrities’ businesses’ and brands’ real-world content, trademarks and copyrights. This means there’s a real possibility of financial loss and reputational damage for metaverse platform owners, the people and institutions who use them, and those holding the IP rights. Moreover, metaverse platform providers and marketplaces have yet to create adequate governance to monitor potential IP violations and are at risk of being sued for infringements.

87% of insurance respondents say the metaverse will be embedded fully and part of their company’s business activities within the next three years, slightly more than the 82% all-industry average.

Source: PwC 2022 US business digital assets and metaverse survey

Business opportunities

Digital assets coverage. A few insurers offer coverage for exchange hacks, cyber attacks, ransomware and loss or theft of investments as well as NFTs and NFT marketplaces across different blockchains. Because coverage options are limited due to volatility and costs, the increase in metaverse activity has created a need for more coverage types, including for buyers, sellers, traders and avatars.

Virtual real estate. While virtual real estate is considered an NFT, no carriers currently cover virtual real estate as its own entity in the metaverse. Carriers can create virtual real estate policies, including virtual real estate mortgage protection, specifically for the metaverse or extend existing protection for concerned parties that covers copyright, trademark and other IP-related theft and infringement. This would be along the lines of coverage for physical collateral, where hacking and cybersquatting are the virtual equivalents of fires, floods and earthquakes.

Events and Entertainment Coverage. A few carriers currently offer event cancellation coverage and event liability coverage for in-person events. Others offer contingency policies that cover event planners for losses in organizational costs, expenses or revenue from advertising and ticket sales if a transmission failure disrupts or cancels a virtual gathering.

Such limited options mean there’s a real opportunity for insurers to introduce more products similar to real-life liability and cancellation insurance products to protect:

Attendees in case of cancellations, delays, financial loss, and other issues that were not their fault
Organizers and performers against reputational damage, financial loss or lawsuits from attendees linked to any issues with the event
Platform providers against lawsuits from organizers, performers and attendees for hosting failures or delays

Such coverage would be similar to what already exists for virtual and in-person events.

Intellectual Property Coverage. No carrier currently provides digital IP insurance specific to the metaverse, but there are ongoing efforts to determine how to protect creators and their ideas. This means there’s an opportunity to extend traditional IP policy coverage for brands, individuals and platform providers in the metaverse to cover copyright, trademark and other IP-related theft or infringement.

Six steps insurers can take now

The metaverse offers insurers meaningful opportunities, both in terms of their own operations and meeting new coverage needs. Here are some key considerations as you plot your involvement in the metaverse and increase your understanding of its inherent risks.

1. Determine which technologies and related processes you’ll need. This requires not only choosing the right metaverse platform — based on business and customer preferences — but also buying or developing metaverse-specific technologies (such as specialized AI), and crafting appropriate procedures and controls.

2. Run engagement pilots targeting focused user segments, covering specific interaction scenarios, and then iterate with improvements and new use cases.

3. According to the PwC 2022 US metaverse survey, identifying the metaverse skills to develop and acquire is the most common metaverse-related concern among companies, regardless of industry. Fortunately, you can teach basic metaverse skills through the metaverse itself, including via already available training modules. But you may need a more aggressive approach for new and highly specialized skills — for example, by sending your tech experts for focused training in adjacent fields, making new hires and working with third parties that can provide the key skills you need.

4. Among the new metaverse-specific risks that every company must manage, insurers should pay special attention to fast-evolving regulatory developments and to security. It’s also important to go beyond the letter of the law and design trust upfront and throughout your metaverse operations — rather than having to make fixes later. No one wants to experience or be known for a metaverse scam, security breach, privacy violation or tax penalty, and carriers naturally would prefer to avoid these risks.

5. Define and run pilot projects for new or modified products covering risk in the metaverse. Look for potential entry points in areas that can be considered close or parallel to an existing portfolio or expertise.

6. As you take these actions, incorporate the lessons you learn along the way to inform your risk appetite, the products you design and the markets and customers you target. For example, If you begin by adding metaverse-related line items to existing coverages, you may soon be able to offer whole new lines of business as you deepen your institutional understanding of the metaverse.