Insurers urged to prepare for ‘metaverse’ liability

Metaverse Cyberpunk Style City With Robots Walking On Street, Neon Lighting On Building Exteriors, Flying Cars And Drones

Most insurers are concerned about existing digital liability risks, but in as soon as three years, they may be confronting commercial liability risks associated with immersive virtual environments known as the ‘metaverse,’ a Geneva Association survey of liability insurance experts has found.

“According to our survey, most attention [of liability insurers] is currently concentrated on relatively mature technologies such as cloud computing and AI, and the associated significant potential for accumulated liability exposures,” said the March 2023 Geneva Association report.

“But reinsurers also need to stay alert to more nascent developments such as the metaverse, which though still highly uncertain could develop rapidly and have far-reaching liability implications.

“Understanding the liability landscape has become complicated enough as it is with the rise of social media and e-commerce platforms – the development of fully immersive virtual environments would only add to the complexity.”

Founded in 1973, The Geneva Association is the only international association of insurance companies. It surveyed 54 executives among its members, insurance and reinsurance CEOs, about existing and future liability insurance trends.

The GA report, Forewarned is forearmed: Emerging commercial liability trends, defines the metaverse as a digital ecosystem built with various kinds of 3D technology, real-time collaboration software, and blockchain-based, decentralized finance tools. Within this environment, users will create digital versions of themselves (avatars) and navigate virtual experiences that mimic real life.

“‘The metaverse does not currently exist,” the GA report stated, “Indeed, many of the foundational technologies have yet to be fully understood in isolation, let alone how they can be combined to define the architecture of fully immersive virtual ecosystems.

“Nonetheless, if the metaverse develops as some predict – by 2026, Gartner expect[s] 25% of people will spend at least one hour a day in a metaverse for work, shopping, education, social media and/or entertainment – it could have important liability implications.”

The report identifies three general areas of commercial liability risk associated with the metaverse.

Data security and privacy

“Metaverse users will face novel privacy risks involving unauthorized transfers of personal and biometric data (e.g., facial expressions, gestures) to third parties,” the report stated. “Cybersecurity and data privacy breaches may also take on a more complex form.”

If the system is closed – that is, it limits participants to a certain proprietary system — then it would be reasonable to expect accountability for liability from the owner of the system. But in an open, public forum with an international reach, it will be much more difficult to separate accountability for liability between the platform owner and the participants.

Property rights

Unlike in the real world, ‘ownership’ in the metaverse does not give anyone legally enforceable rights to any physical property obtained by use of virtual assets such as non-fungible tokens (NFTs).

“This complicates issues relating to potential infringements of copyright and trademarks,” the GA report noted. For example, someone who purchases an NFT from the original creator could sue because they thought the rights associated with obtaining the underlying assets were misleading, and therefore sue for their financial loss.

User interactions

“When users interact through their avatars, some kinds of exchange can occur that would equate to breaking the law if they took place in the real world,” said the report. “Such incidents could be in breach of tort law (for civil claims such as negligence, defamation or nuisance) or criminal law (involving illegal acts and crime such as assault, murder, burglary or rape).

“These avatar interactions raise all sorts of legal uncertainties about who might ultimately be held responsible for virtual wrongdoings. For example, users in the metaverse could wear haptic vests which would actually allow them to feel the sensations if they were touched [and therefore feel injured or assaulted through the interactions with their avatar, causing them to sue].”


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