Metaverse will mean new risks to understand and cover

The metaverse might seem like science fiction or be an abstract concept to many insurers—and certainly not something they should factor into their strategy or decision-making. But underwriters, especially cyber risk professionals, will need to understand the risks in this new world sooner than they think to properly cover their insureds, presenting the industry with challenges as well as opportunities.

That is the view of John Farley (pictured), managing director of the cyber practice at Gallagher, who argues that the metaverse, essentially a network of 3D virtual worlds, may well impact every element of cyber risk management in the future. Insurers will need to understand the risks in this new world to properly cover their insureds.

“It is widely expected that our physical and digital lives will converge in the metaverse,” he told Intelligent Insurer. “Businesses across all sectors—from healthcare to construction—will adopt this new, more immersive virtual reality. Specifically, underwriters will need to know how the metaverse may raise a risk profile of a particular insured and whether their current policies cover that exposure, intentionally or not.”

Farley believes that underwriters will eventually be tasked with quantifying a metaverse-based loss and calculating the likelihood of that event. “If they intend to cover it, they need to invest in experts who are trained to mitigate the loss and settle the matter,” he said.

Fundamentally, Farley believes the metaverse will elevate cyber risk through multiple threat vectors. These may take many forms ranging from fraud to theft to copyright infringements—all in a virtual setting.

“Social engineering attacks will become even more sophisticated and targeted, as threat actors interact with us through avatars and virtual rooms in a more immersive way than before. We may be even more inclined to trust them in the metaverse.

“It will be a place where we use cryptocurrency as the main means of transacting business. Recent history has proved that these exchanges are far from secure. I also foresee legal landmines related to copyright and trademark infringement. What if the original owner of the physical item disagrees with how it is portrayed in the metaverse?”

These challenges will soon hit the radar of regulators, Farley believes. “I predict regulators will have concerns about who can create and use an avatar. They are likely to mandate standards that will speak to who can have access to the avatar and what is required of individuals who store and protect it.”

In this context, he says, cyber insurance underwriters and brokers will need to keep up. They will need to understand how the metaverse may expand the attack surface, as well as continually educate their clients on the risks of this new digital world and how to manage them.

Brokers may need to push the insurance markets to adapt policies to the metaverse and seek clarification on what underwriters intend and don’t intend to cover.

“It presents a challenge and an opportunity. There are parallels to the early days of the internet when cyber insurance was born. Some will adopt it earlier than others, but sooner or later, everyone will have to embrace it in some way.

“Those who get it right will be the industry leaders,” he concluded.