Fine Art in the Metaverse: Unlocking opportunities and managing risks

Serving as an extension of the real world, the metaverse has introduced fresh opportunities for insurers by incorporating digital assets into the mix. Venturing into this new territory brings forth both new challenges and prospects that insurers must confront.

The metaverse is an all-encompassing space of digital experience, where users can interact with each other and with virtual objects in a completely immersive way. In this space, individuals can attend virtual events, buy virtual real estate and other digital items with digital currencies, and participate in a variety of virtual activities. The ability to purchase items in the digital art marketplace creates virtual ownership. As soon as there is ownership there is also an exposure to risk, creating the need for insurance in the metaverse.

Challenges and risks in insuring digital art and assets in the metaverse

In recent years, we have seen a demand from collectors for digital art to be insured after several cases of artwork being stolen from digital wallets. However, these pieces of art tend to be intangible and intrinsic in terms of value and their authentication proves challenging since they are not linked to conventional 'real-world' currencies. Likewise, the world of digital art is often a speculative market, with uncertainty regularly leading to instability and price volatility. Ultimately, these challenges lead to digital assets being hard to determine in terms of value. 

Moreover, legislation and governance are still developing with regards to the metaverse, presenting additional challenges when it comes to insuring digital art. In this expansive virtual space, conventional legal frameworks and borders do not apply, making it challenging to determine which laws should apply in instances of digital asset theft. Even if the question of legal jurisdiction were resolved, another pressing concern arises: identifying the responsible parties for enforcing these laws. This currently stands as the most significant risk preventing insurers from offering coverage for assets in the digital art marketplace.

Envisioning the future of art insurance in the metaverse

We can envision the possibility of insuring art within the metaverse in the future, provided that the issues identified are effectively resolved. While the metaverse is currently in its infancy, it is rapidly gaining traction and is expected to undergo significant development in the coming years. Therefore, resolving these issues should be a key part of our development in the future, ensuring the industry doesn’t fall behind. 

Firstly, regarding the issue of authentication and intangible value, some digital items in the metaverse are tokenised on a blockchain, a type of digital ledger that records transactions in a secure, transparent, and tamper-proof way. If all pieces of digital art were tokenised on a blockchain, this would allow us as an insurer to follow the transactions to ensure that the assets were authentic before insuring them. Using blockchain technology, insurers can provide information on provenance of art works, and condition tracking for artworks with data ownership decentralized to the owner. Thus, as a fine art insurer, the access to and use of the blockchain to authenticate digital assets would help us and other insurers to take the first step into the metaverse.

Regarding the absence of legislation and governance, there is a compelling need for concrete structures to be established in the digital art marketplace. With well-defined rules and a structured framework in place, Liberty Specialty Markets (LSM), alongside other insurers, would be better positioned to enter the market and offer the essential insurance coverage required by digital art collectors.

Entering the metaverse as insurers 

As legislation around the metaverse develops, it provides an opportunity to communicate in a more accessible way to a broader audience. Both digital and physical artworks can be shown in the metaverse in a digital hub, providing a platform for LSM to interact with clients, partners and stakeholders in a virtual space. With a mouse-click digital art vernissages, art awards or fairs can be accessed from anywhere in the world. Clients are able to move through space with an avatar, view both physical and digital art on their screens, communicate with other people and obtain more information directly from art market players as well as us as the insurers. 

By working within the regulatory framework we can establish a solid foundation of governance and by leveraging the blockchain technology for authentication, insurers like LSM can confidently enter the metaverse, providing the necessary coverage for digital art collectors and ensuring their protection in this rapidly evolving digital landscape.

Authored Larissa Lampert, Junior Underwriter - Fine Art & Specie, Zurich