Digitalisation & Technology, 03 January 2022

The metaverse

Opportunities and challenges for financial service providers and insurance companies

Customers have been making use of online banking and shopping as well as digitally organising their personal insurance and investment matters for some time. But now the metaverse, the industry's vision, is on everyone's lips. It will transform the internet into a three-dimensional space. People will not just be able to watch content, they will find themselves right in the centre of it themselves. Facebook too, recently renamed Meta, is working on its development. And the metaverse presents totally new opportunities and challenges to insurance companies and financial services providers.

The metaverse as a digital parallel world

The metaverse is a futuristic digital world that exists parallel to our real world – in short, a meta-universe. We will be able to move around this world as avatars in the same way that we would in an analogue reality: that means that we will be able to meet and talk to other people there, shop, invest in land or real estate, play games and much more. Real and virtual worlds merge into one. In future, we will have more and more opportunities to interact with other people in virtual rooms using a range of different digital tools.

The origin of the metaverse

The idea of the metaverse originated in Neal Stephenson's novel “Snow Crash” published in 1992. The science fiction novel describes a virtual world into which the protagonists repeatedly flee from the real world. They access the metaverse wearing some form of Augmented Reality glasses. The glasses allow them to simultaneously move around in their material life and in the metaverse. "Snow Crash" thus already links the real world to the virtual world and also an augmented reality.

The metaverse could develop into a real billion-dollar market in the coming years

Cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), can be used in the metaverse instead of Fiat currencies, i.e. the most common means of payment. It is assumed that the first bank in the metaverse will not be a traditional bank from the analogue world, instead, financial technology (FinTech) companies or internet giants, like Google, Amazon or Facebook and/or Meta respectively, will come into play. A partner with a banking licence, whether a FinTech company or a traditional bank, could then create completely new opportunities with BaaS (Backend as a Service) modules, white label banking, and embedded finance solutions. If this partner also has a good grasp of cryptocurrencies, tokens and decentralised finance, then they can be successful in both the analogue and the virtual world. There are great opportunities for banks that want to position themselves as FinTech and solution providers for other companies.

Asset managers see great revenue potential in the metaverse

Grayscale Invest, one of the largest asset managers for digital currencies, referred to the metaverse as ‘Web 3’ in its November 2021 report. It believes that it offers potential revenue of $1 trillion within a few years. It consists of virtual worlds, in which most of what we do in the real world is also possible. However, the number of users is still rather low: according to Grayscale, only 50,000 users are currently active in the metaverse. However, this is ten times more than at the start of 2020. If this growth rate continues, the metaverse could quickly reach a magnitude that could concern Web 2 giants (such as online communities).

The US investment banking and securities trading company Morgan Stanley considers that the metaverse could even grow into an $8 trillion market that will become the “next generation of social media, streaming and gaming platforms.”

In addition, the company said that digital demand for fashion and luxury brands will grow adding a further $50 billion in revenue to the industry by 2030.

The coronavirus pandemic is one of the strong drivers of the 'metaversum' vision. People have discovered unimagined possibilities as individuals all over the world are suddenly living much more digitally than ever before.

The metaverse as an opportunity for insurance companies

The coronavirus pandemic is one of the strong drivers of the 'metaversum' vision. People have discovered unimagined possibilities as individuals all over the world are suddenly living much more digitally than ever before. Until then, many people were not at all clear about what is already possible in the digital world. The metaverse now has a great opportunity to be noticed by the general public, a factor that also presents new opportunities for insurance companies.

Among other things, clients and agents could meet up in the metaverse for consultations. But the metaversum also presents totally new risks that need to be covered and will demand new insurance solutions. For instance, every time users buy virtual currencies and digital assets, they receive confirmation proof, possibly in the form of a token. This presents the risk of people hacking into digital assets.

Insurance companies will have to work with huge volumes of data to analyse risks in the metaverse and develop appropriate premiums. Artificial intelligence and data analytics will help with this in future.

Text: Mirjam Wilhelm