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Insurtech Innovation In The Metaverse - Laws and Insurance Products


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The metaverse will offer new forms of immersive entertainment, modes of social interaction, and opportunities for collaboration. It is also expected to generate enormous economic value. According to a recent Citi report, “the total addressable market for the Metaverse could be between $8 trillion and $13 trillion by 2030,” with the number of users possibly reaching 5 billion that year.

But participants in the metaverse could face significant risks of fraud, theft, and damage, especially in the early stages of its development. The nature of digital relationships can make it difficult to determine who is responsible if something goes wrong, and the nature of digital ownership can make it difficult to assess value and assess property damage. Intellectual property, including trademarks, can be particularly vulnerable and individuals may face an increased risk of identity theft. Additionally, security risks change as the metaverse evolves, making it difficult for participants to understand their future risk and exposure.

While insurance will undoubtedly play an important role in mitigating these risks, insurers have yet to offer specific products at scale to protect digital assets or goods in the metaverse. There can be many reasons for this, but two challenges stand out as particularly important: (1) uncertainty regarding regulation and (2) insurance methodologies in the space. In other words, it will be difficult for insurers to assess risk and offer new products until the regulatory landscape is more stable, and insurers will also have to learn how to effectively underwrite products and assess disasters in the metaverse.

Regulatory uncertainty

Regulation inevitably lags behind innovation. To some extent, this is more of a feature than a flaw, as regulators risk doing more harm than good by setting rules too soon. That said, the true value of transformative innovations can often only be fully realized when the regulatory environment begins to take shape, and lingering ambiguity can open the door to widespread fraud.

A first step would be for regulators to assure participants that existing financial regulations apply in the metaverse – and will be applied – as they do in the real world. This includes Know Your Customer (KYC), Anti-Money Laundering (AML) and Unfair Trade Practices laws.

Of course, existing rules may not be sufficient. Some will need to be adapted to this new context, and regulators may need to develop new rules to meet the new challenges presented by the metaverse. For some issues, clarity will only begin to emerge through lengthy court processes. In the United States, the regulatory landscape is complicated by the fact that insurance is regulated at the state level, which means that there can be variations in the rules between states. Additionally, enforcement can be a significant challenge in digital spaces that span the globe.

Methodological uncertainty

Regulatory uncertainty certainly affects risk modeling, but it can also be difficult for insurers to assess risk in the metaverse because the space is so new that they lack the data and experience to design products economically. viable solutions that meet customer needs.

Underwriting could be difficult as insurers have yet to develop effective pricing models for the metaverse. Resolving claims could be another challenge as it can be difficult to document and determine the value of lost digital assets and property. Insurers will likely develop their own avatars to reach customers and conduct damage investigations, but this also presents new challenges given that there is no protocol for using avatars in this way.

Insurtech’s product-metaverse fit

There are significant challenges to ensuring the long-term viability of insurance as a solution to the risks inherent in the metaverse. However, regulatory scrutiny will increase as the metaverse grows, and regulators and courts will inevitably begin to clarify how the rules apply in the space – as they have already begun to do in other places. contexts. Insurers and insurtechs are watching the space closely, and no doubt many are already building the evidence base and testing ideas so they’ll be ready to launch products when the time comes. This should be an exciting prospect for the industry, as their success can accelerate the development of the next digital revolution.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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