Law & Games Seminar

I said I would write down some thoughts about insurance and virtual worlds. I think there is a fundamental set of questions relating to the characteristics of risk and property interests in virtual worlds: would we expect there to be a market for insurance?

In the RW people insure valuable assets against certain types of risk (theft, fire, etc). They also take out life insurance to cover expenses associated with death (loss of income for dependents etc). VWs are at present different from the RW in ways that probably matter here.

Insurance of assets: in a game where a player accepted that assets were at risk of being stolen etc because of the rules of the game, the player would seem to have undertaken a risk voluntarily. I think there are a number of issues/questions here:
1. what sort of RW risks that people undertake voluntarily do/can they insure against? If you had a contract with an employee which allowed the employee to steal from you, I think you’d be unlikely to be able to insure against this (moral hazard). Or are risks in VWs more like natural risks of flood, hurricanes etc (the employee example implies your power to monitor the behaviour which is what gives rise to the moral hazard -you’d be in a position to determine the amount of your loss and natural events are different in this respect). Floods etc will happen but the incidence/amount of loss is unpredictable.
2. What other mechanisms exist to deal with the risks (and how do these relate to RW insurance):
- acceptance of risk (related to the thrill of playing the game?)
- asset parking (cf parking RW assets offshore)
- risk sharing through guilds etc?
- others?

Life Insurance: is an avatar like a person whose life can be insured? Do you have an insurable interest in the life of your avatar? Using insurance as a way of gambling on the length of real peoples’ lives has raised some issues (cf viatical settlements). Again, surely there would be issues of moral hazard (your ability to control the risks to which you would subject your avatar).

If insurance were desirable/possible, there would clearly be problems with risk assessment and valuation too.

Financial institutions are developing VWs as ways of marketing their services and to build brands and communicate information.

Thoughts/comments?