The metaverse is generally viewed as an evolution of the current internet into something based upon immersive and experimental platforms where users carry a consistent identity throughout. This will enable users to socialise, shop, work, play and carry out other everyday activities in a consistent way online.

The metaverse has the potential to redefine the insurance landscape. Imagine insurance companies providing virtual personalised user experiences for customers, risk assessments driven by artificial intelligence (AI), immersive training and even insuring the availability of the metaverse or items within it. In this paper we consider potential ways in which insurers could use the metaverse, and the challenges and risks associated with adoption of this new virtual world within the industry.

Evolution of the metaverse

As the internet evolves to enable more user-generated virtual experiences, its anticipated widespread use means that insurers will need to evolve and embrace the virtual arena in order to keep pace with the new world. At a minimum, we might expect insurers to want to create a presence in this virtual space for branding purposes, with numerous further potential insurance products, processes and customer applications.

Whilst there are a number of virtual worlds currently in existence, they are potentially only precursors to the emergence of a singular metaverse where all platforms are interconnected. As is often the case with new technology, there is potential for the metaverse to emerge suddenly, causing a rapid transformation of our online lives. As such, there would be sudden potential for a wide range of opportunities, as well as the crystallisation of associated risks.

In 2026, it is estimated that 25% of the global population will spend at least an hour a day in the metaverse.¹

Potential use cases for insurers

The metaverse is not currently used in the insurance industry. However, when the metaverse does emerge there are conceivable opportunities for insurers with regard to new product offerings and the potential to enhance customer experiences in the future.

An enhanced customer experience

The metaverse could help provide a more personalised user experience for customers. The evolution of the internet into a virtual world could provide enhanced customer support services, available 24/7. Scoped for targeted support, catering to the diverse needs of customers could be provided via technology that takes into account the customer’s specific characteristics or needs. For example, Korean life insurance company Hanwha Life² has created a virtual financial planner, a virtual human, which engages with customers and provides more tailored services.

As a new sales channel and platform for engagement with customers, the metaverse may help attract and retain a younger customer base, as well as ensure continued customer engagement with insurance policies. For example, hybrid life insurance company and mobile game start-up, YuLife, has created a life insurance virtual world.³ Its "Yuniverse" is a collection of virtual worlds, each representing a set of real-life tasks, from bike miles to meditation hours to step counts. Customers are rewarded with a virtual currency for using the mobile game, which can be converted to vouchers.

New products

As a new virtual world emerges, virtual assets such as virtual property and non-fungible tokens will become commonplace, thus providing the opportunity for the creation of new types of insurance products that provide coverage for these digital assets within the metaverse. Such products would present new risks for insurers and require new underwriting processes to be developed.

Businesses that rely on the metaverse may also require a continuity of the metaverse type product, to cover losses from metaverse outages or issues.

Some insurers are aligning their asset portfolios or fund options to specifically target metaverse-ready companies. In 2022 AXA Investment Managers (AXA IM) launched the AXA IM Metaverse strategy, which aims to invest in companies involved in the metaverse.⁴

Insurance processes

Key processes such as underwriting and claims management can be improved or simplified through the metaverse. Virtual reality can be used to appraise risks without physically visiting a property or business site for example. Similarly, for claims processing an insurer could view and assess damage using a virtual reality (VR) headset. As a result, processes may become quicker, cheaper and therefore more efficient, which in turn leads to improved profitability for the insurer and may lead to a better standard of service for policyholders.

Health insurers could use the metaverse to provide virtual healthcare services, such as telehealth consultations or virtual therapy sessions, an evolution of the online health consultations that are currently available. This could improve access to healthcare services and potentially lower healthcare costs.

Transformation of the workplace

A more general application of the metaverse is its potential to transform the workplace, particularly interactions within the workplace. The metaverse provides the opportunity to significantly enhance virtual interactions. It could be used to enhance online webinars and forums, or to recruit and onboard new remote workers, providing them with the opportunity to meet colleagues and develop relationships in a more productive and personal manner, giving them a sense of genuine interaction that is currently missing from video call meetings.

For example, Taveo (previously known as "Hubb"), announced in 2022 that it had become the world's first metaverse-ready insurance broker.⁵ Taveo uses a metaverse alternative reality platform to create a new hybrid working environment, with internal meetings taking place via VR devices. It also aims to offer new and adaptable ways for clients to engage with the company via metaverse-driven technology.

Case study: Digital twins

A digital twin is a virtual copy, or representation, of a physical object, process or system—a bridge between the real world and the digital world. The digital replica, a virtual model, can use real-time data to replicate processes, run simulations and assess performance issues. Digital twins are existing technology that are expected to form the foundation of the virtual world. With the evolution of the metaverse, digital twins should become more practical and wide-ranging.

Digital twins are being used in many real-life applications:

• Manufacturing: Digital twins are used to help streamline manufacturing processes and improve productivity, which helps to reduce costs and defects. The feasibility and design of products can be tested in a virtual copy prior to manufacturing and the efficiency of equipment can therefore be improved.
• Construction: Digital twins allow construction companies to test how a building will look at the end of the project and how it would fare if impacted by extreme events, such as a flood or an earthquake.
  For example, digital twins were used in the construction of CrossRail⁶ in London to monitor the progress of the project, to visualise what the final product would look like and to identify potential issues with the construction.
• Automotive: Real-time data from the digital twin is used to improve the performance of vehicles, improving their reliability. New design concepts for vehicles can be tested before they are built, and digital twins can subsequently predict how the vehicle will perform in varying conditions.

There are a number of potential applications of digital twins within the insurance industry:

• Simulating weather events: Events including earthquakes or hurricanes could be modelled using digital twins. By running simulations, insurers can assess what the impact of the event would be, enabling a better understanding of the potential losses. Digital twins could therefore help insurers prepare for these events and think about appropriate mitigating actions.
  For ships transporting goods across the world, a digital twin could make use of real-time weather data (if a storm is predicted to intercept the ship) to assess what the impact would be if the storm hit the ship and also to assess what the impact would be if the ship diverted on another route or to a different port.
• Fraud detection: If insurers have suspicions over a claim that has been reported, for example damage caused to a vehicle, then a digital twin could be used to replicate the environment in which the damage occurred and simulate the event. Using this information the claims team could then look for inconsistencies in the information provided and closely examine suspect claims.
• Pricing: Insurers could make use of digital twins by using real-time data to price risks. By constructing digital twins, and running simulations, insurers can gather significant volumes of data, which they can use when underwriting to ensure that they set competitive premiums (for example, in competitive markets such as house insurance and motor insurance). Digital twins could also be used to help price events that occur less frequently, such as catastrophic events, for which there is little real-world data.
• Distribution: Consumers could have their own digital twins, which take into account their shopping habits, online activities and search habits. This would then allow the insurer to simulate the customer’s expected behaviour. Insurers can use the digital twins to increase their understanding of their profile, which could lead to more opportunities to cross-sell, as insurers can target customers in more specific ways.

Some insurance companies are already making use of digital twins. AXA XL has been working on producing a VR platform that, alongside digital twins, could be applied to a wide range of risks and insurance use cases.⁷ One such example is augmented risk training, where AXA XL has developed a VR training platform which has a range of risk- and insurance-specific VR training experiences. For example, it intends to create VR training content for property and casualty (P&C) risks where effective mitigations exist, e.g., fire and flood mitigation. Environments modelled in 3D are used for the training content, which can be customised to the client’s own risk profile or incorporate the client’s own virtual twin (for example, if it has a digital twin of an industrial facility).

Despite the advantages highlighted above, digital twins also have their drawbacks and challenges. Digital twins are complex and therefore there are time and cost implications; it is not financially viable for every object, process or system to have a digital twin. Transforming and processing the data from digital twins to obtain insights is also less straightforward than capturing the data itself. Additionally, there is a risk that, if the digital twin isn’t calibrated properly, then the data collected is not accurate.

Risks, challenges and considerations

As with all new and novel concepts, adoption of the metaverse will bring new, and not currently understood, risks. Below we discuss some of the key risks and challenges that may arise.

Data and cybersecurity

New technology brings new risks and, if the adoption of the metaverse arises suddenly, it is likely that there will be many new and poorly understood cyber risks arising. Any adoption of the metaverse will bring data security concerns. For example, virtual reality headsets may gather significant amounts of sensitive data and insurers utilising this technology will need appropriate safeguards, processes and policies in place to deal with the new data that is being gathered. Both company and customers’ data could be compromised, with additional issues if the insurer is, for example, collecting personally identifiable information (PII).

Regulation and compliance

The UK currently has no metaverse-specific regulation, although discussions are beginning to be held on its implications. For example, a blog⁸ by the Competition and Markets Authority raises regulatory issues such as safety and privacy, proprietary rights and consumer protection as being relevant to the metaverse.

Complying with new metaverse regulations will result in costs being incurred, with potential for reputational issues to arise if companies are seen to misuse the metaverse whilst regulations are in their infancy.

Existing regulations may be applicable when developing metaverse-based products and services; for example, existing data protection regulations are very likely to be relevant and extendable to the metaverse.

Use of the metaverse may also pose challenges in terms of ensuring that existing regulations are complied with. Consumer Duty regulation requires companies to know their customers, which may prove challenging if customers interact via a virtual interface such as an avatar.⁹ There is therefore work to be done to ensure that any existing regulations are complied with when developing metaverse capabilities.

Finally, consideration around who holds ultimate liability for damages in the virtual world would need to be defined via regulation and/or legal expertise to ensure that metaverse-based insurance products have a clear scope.

Operational risks

The operational risks associated with the metaverse are new and unknown, with no real-world examples available to draw upon. On the other hand, risk teams may be able to draw upon experience and parallels with the adoption of other new and novel types of technology. An example is AI, the use of which has rapidly become commonplace.

If heavy reliance is put upon metaverse hosts and server providers, then there is a risk of significant business interruption, particularly as the metaverse is likely to require advanced technology and potentially significant computing power. New metaverse-based business continuity types of insurance policies could be a mitigant to this risk.

Reputational risks

As mentioned above, there are reputational risks if insurers misuse the metaverse and particularly if they do not adequately protect consumers. Any negative associations with the metaverse could lead to adverse publicity for insurers who invest heavily in the metaverse.

Health impacts

Widespread adoption of the metaverse is likely to encourage more sedentary time, as well as less time spent with human contact. This could bring about both physical and mental health challenges. Life and health insurers may need to consider this trend in assumption-setting and product design.

Ethical considerations

Certain sections of society will be unable or unwilling to embrace the metaverse and therefore any developments insurers make in terms of adoption of the metaverse will not be accessible to a proportion of the population. Existing products and services offered outside of the virtual world will need to be maintained to a good standard to ensure equality and continued accessibility for those unable to access the metaverse, otherwise there may be reputational and regulatory implications.

Infrastructure

Adoption of the metaverse will require investment in new technology infrastructure, with potentially significant time and cost implications for insurers.

Conclusion

The evolution of the internet is progressing. The metaverse is likely to represent a very different environment to the one insurance is currently sold into. It is worth starting to think about what changes might be needed to products, operational process, skills etc. Although the regular use of a metaverse might be a little way off, some of the changes required might take time. Starting to think about them sooner rather than later means you will have time to make any necessary changes.

¹ Statista. Estimated Metaverse Use Case Among Consumers and Businesses Worldwide in 2026. Retrieved 22 July 2024 from https://www.statista.com/statistics/1290160/projected-metaverse-use-reach-global-consumers-businesses/.

² The Investor (9 November 2022). Hanwha Life Insurance Unveils “Virtual Human” Amid Rush to Metaverse. Retrieved 22 July 2024 from http://m.theinvestor.co.kr/view.php?ud=20221109000173.

³ Waters, M. (30 July 2021). Millennials, What Will It Take for You to Buy Life Insurance? The Atlantic. Retrieved 22 July 2024 from https://www.theatlantic.com/technology/archive/2021/07/great-life-insurance-rebrand/619603/.

⁴ AXA (12 April 2022). AXA IM Launches Metaverse Strategy Strengthening Its Thematic Offering. Retrieved 22 July 2024 from https://www.axa-im-usa.com/media-center/axa-im-launches-metaverse-strategy-strengthening-its-thematic-offering.

⁵ England, J. (9 February 2022). UK Insurtech Hubb Is First Metaverse-Ready Insurance Broker. InsurTech. Retrieved 22 July 2024 from https://insurtechdigital.com/technology-and-ai/uk-insurtech-hubb-is-first-metaverse-ready-insurance-broker.

⁶ FutureRAIL. Elizabeth’s Digital Twin: The Technology Helping Crossrail to Know Itself. Retrieved 22 July 2024 from https://rail.nridigital.com/future_rail_jul21/digital_twin_crossrail.

⁷ Ambourg, M. (18 October 2023). Digital Twins – How a Double Life Can Help Prevent Losses. AXA XL. Retrieved 22 July 2024 from https://axaxl.com/fast-fast-forward/articles/digital-twins-how-a-double-life-can-help-prevent-losses.

⁸ Gov.UK (22 June 2022). The Metaverse and Immersive Technologies – A Regulatory Perspective. Competition and Markets Authority Blog. Retrieved 22 July 2024 from https://competitionandmarkets.blog.gov.uk/2022/06/22/the-metaverse-and-immersive-technologies-a-regulatory-perspective/.

⁹ A graphical representation of a person or character in a computer-generated environment. See https://www.oed.com/dictionary/avatar_n?tl=true#32513855.