The next evolution of the internet is coming. The hyper-connected and digitally enhanced concept of the metaverse will, some commentators say, revolutionise life and business – in as little as a decade. Such opportunity does not come about without risks, however. Deborah Ritchie takes a look at developments

The next wave of digital change is (almost) here, and if the raft of reports on the opportunities that surround the metaverse are on the money, fortune will favour the brave in this new world.

Accenture refers to this novel realm as the ‘Metaverse Continuum’ – “a spectrum of digitally enhanced worlds, realities and business models poised to revolutionise life and enterprise in the next decade”. It says the metaverse will transform the way businesses interact with customers, how work is done, what products and services companies offer, how they make and distribute them, and how they operate their organisations themselves.

But what is it exactly? Whatever it currently is, or will become, it doesn’t ‘belong’ to Facebook, a brief misconception after the social media giant’s rebrand last year to Meta. Designed to bring together Zuckerberg’s network of apps – as well as its Quest VR headset and Horizon VR platform – under a metaverse umbrella, the rebrand received a degree of criticism, due in part to the meaning in Hebrew of the word ‘meta’, which loosely translates to ‘dead’ – something that Zuckerberg’s brand chiefs either missed, or perhaps overlooked, given the more positive Greek connotations of ‘beyond’, ‘higher’ and ‘altered’.

Etymology aside, in practice, the metaverse, according to McKinsey’s June 2022 Value Creation in the Metaverse report, is a combination of the following elements:

• The metaverse encompasses immersive environments, often (but not always) using virtual- or augmented-reality technology.

• The metaverse is ‘always on’ and exists in real time.

• The metaverse spans the virtual and physical worlds, as well as multiple platforms.

• The metaverse is powered by a fully functioning virtual economy, often (but not always) built on cryptocurrency and digital goods and assets, including non-fungible tokens.

• The metaverse enables people to have virtual identities, presence, and ‘agency’, including peer-to-peer interactions, transactions, user-generated content, and ‘world-building’.

McKinsey says the metaverse is best characterised as an evolution of today’s internet – something we are immersed in, rather than something we look at. “It may realise the promise of vast digital worlds to parallel our physical one,” it adds.

A growing new market

Interest in the metaverse has sky-rocketed in recent months. According to McKinsey’s Lareina Yee, internet searches for the term rose some 7,200 per cent in 2021 – a clear signal she said that people want to better understand what it all means to them.

In the US, PwC’s 2022 survey of over 5,000 consumers and 1,000 business leaders found that 50 per cent of consumers consider the metaverse “exciting”, and 66 per cent of executives report that their companies are “actively engaged” with the metaverse, by which they mean they are building proofs of concept, testing use cases and even already generating revenue from metaverse environments or (more commonly) the underlying technologies.

Another 82 per cent of executives polled by PwC anticipate that the metaverse will be part of their business activities within three years.

Private capital is also pouring in. In 2021, metaverse-related companies reportedly raised upward of US$10 billion according to the consulting firm, more than twice as much as they did the previous year. In the 12 months to May 2022, Epic Games (maker of Fortnite) raised US$3 billion to fund its long-term vision for the metaverse, and announced a partnership with LEGO to build a metaverse for children. The global value creation potential from the metaverse, it says, could be in the trillions.

Analysis published by Citibank in March 2022 goes further. On the basis that users should increasingly be able to access a host of use cases, including commerce, art, media, advertising, healthcare and social collaboration; and that a device-agnostic metaverse ecosystem would be accessible via PCs, game consoles and smartphones, the total addressable market for the metaverse could be between US$8 trillion and US$13 trillion by 2030, with total users numbering around five billion.

Citibank’s report also examines the definition of money in the “open metaverse”.

“Interoperability and seamless exchange between underlying blockchain technology are critical to ensure a frictionless user experience. Different forms of cryptocurrency are expected to dominate, but given the multi-chain trend in the crypto ecosystem, cryptocurrency will likely coexist with fiat currencies, central bank digital currencies and stablecoins,” it adds. “...if the Metaverse is indeed the new iteration of the internet, it will mostly likely attract greater scrutiny from global regulators, policymakers, and governments. Issues such as anti-money laundering rules for exchanges and wallets, the use of decentralised finance, crypto assets and property rights will all have to be addressed.”

Reimagining risk

Other elements of the metaverse are still shrouded in uncertainty, and while the concepts sound promising, these new capabilities bring about a raft of new risks. Some of these are already playing out in the physical world, as Accenture points out in its 2022 report Meet Me in the Metaverse.

“The physical world is coming alive with new capabilities, environment by environment, each with its own rules. We already have small-scale intelligent physical worlds like smart factories, intelligent cruise ships and automated ports. Tomorrow we’ll see these grow into smart neighbourhoods, cities and countries, where massive digital twins mirror physical reality. And purely digital worlds are expanding as well. Major companies will have their own internal metaverses to let employees work and interact from anywhere. In our free time, new consumer metaverses will transport us to almost any type of world we can imagine, to play games, socialise or relax,” the report reads.

Accenture asserts that, whilst it is still early days in envisioning all the opportunities of this new realm, businesses that hesitate amid the uncertainty of it all will soon be operating in “worlds defined by others”.

“Businesses will find themselves on the front lines of establishing safety and defining the human experience in these worlds. Trust will be paramount; existing concerns around privacy, bias, fairness and human impact are sharpening as the line between people’s physical and digital lives blurs. Leading enterprises will shoulder the charge for building a responsible metaverse, and are setting the standards now,” the report reads.

Insurance and liability

As the metaverse grows and creates new industries, new threat dynamics and liabilities will emerge, with considerable implications for risk management. But to what degree will the metaverse entail a rethink when it comes to policies and liability?

Michael Brunero, head of tech, media and IP at CFC Underwriting, says that at the very least, it is imperative that we avoid viewing the tech companies of today through yesterday’s eyes.

“A lot of the insurance products designed for tech companies were developed by the insurance industry in the 90s. But technology is evolving and if we are to do our job as an industry, we need to evolve too. Our policies need to reflect the exposures of modern companies and be easier to understand,” he says. “Insurance can have a habit of having customers fit into our products and the way we do things. We need to make products that are fit for purpose. While there are players out there doing this, most insurance classes are fairly static. Solutions need to be able to respond to the risks brought about by digitisation and multinational exposures – such as cyber hazards and intellectual property infringement issues. If we are still questioning whether software is a product or a service and which insurance policy should respond in 2022, then we haven’t really evolved in the past 30 years with solutions that are workable for modern tech enterprises.”

With the metaverse still as yet a fairly broad concept, Brunero says the insurance market has an opportunity to evolve alongside it to create valuable solutions to new risks.

“There a differing views of what cyberspace will look like in the future. But technology doesn’t just appear overnight in a great big bang of advancement, rather it takes time and it evolves. The opportunity for the insurance market really lies in understanding the building blocks of the metaverse and the technology that exists now that will underpin it, or at least evolve to form this metaverse.”

Brunero believes that the insurance market needs to start thinking now about how businesses are approaching augmented reality, virtual reality, esports, blockchain, digital assets, intellectual property rights, digital healthcare and finance in the metaverse.

“Having an understanding of these areas and finding solutions for these businesses now is the starting point, and there is plenty of opportunity that exists here and now in these emerging technologies,” he asserts.

“One of the biggest challenges we face is disentangling the fact from the fiction, the hype from the reality. There is the worry of building products or solutions for an industry that doesn’t eventuate...or takes a lot longer to eventuate than anticipated. We need to keep our finger on the pulse but be cautious not to be too trigger happy. It is also a case of going back to the 101 of ‘know your client’: who are they and what are they genuinely trying to achieve. There are a lot of cash grabs and scams out there and the industry is wise to be cautious.

“Digital assets are on the rise, both in popularity and discussion, but – and I hate to use a cliché – this really is the Wild West of the internet. What exactly are people buying? When it comes to digital property, it isn’t governed by the principles of property law, rather it is generally covered by contract law so the terms are going to be unique in every case. There will no doubt be entirely new challenges faced by the uncertain legal framework.

“The attraction to the metaverse is often steeped in the fact that it is decentralised and so no one governing body has authority over it – and that definitely creates challenges for the insurance industry. There is a lot of talk of those in the space combating the need for over-regulation by governments by self regulation, but at this point it is still such early days that I think there is a long way to go and it is incumbent upon the insurance industry to be conducting due diligence in this space.”

As with all new technologies and innovations, a healthy amount of scepticism is always advisable. As McKinsey points out, “the promise may take some time catching up to the hype”.

What is clear, even at this point, is that a fundamental shift in how people and businesses use the internet is well underway – something that risk and insurance professionals should have on the radar to support their organisations in fully realising this future world of possibilities; whilst being ready for the unknown unknowns that will inevitably arise in the process.

This article was published in the Q3 2022 issue of CIR Magazine.

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