When Regulation Drives Innovation

02/05/2017 08:35 am ET

Regulation has always played a huge role in the development of modern automobiles. Safety regulations have brought us seat belts, airbags and crumple zones. Environmental regulations have brought us better gas mileage, lower toxic emissions and even electric cars.

That’s been the case since the rubber first hit the road. Back in 1865, for example, the U.K. passed its Red Flag Act, restricting “speeding” to a maximum 4 miles per hour and requiring a person to walk in front of the vehicle at all times, waving a red flag to prevent accidents.

Today, regulation, rather than slowing our cars down, is actually speeding up the pace of innovation.

Take the connected car. Today’s connected vehicle – and the autonomous, self-driving car of the future – will open up a world of opportunities, from a reduction in human error and accidents to a drastic drop in the number of cars on the roads, to better communication between vehicles, fewer traffic jams and faster journeys. Traditionally averse to change, the global automotive industry is these days moving quickly to transform their entire way of doing things from the wheels up; even today’s low-end minimally ‘smart’ cars contain a hundred million lines of code and internet connectivity, completely changing the way we move.

But with opportunity comes challenge. These new, connected “computers on wheels” include countless new vectors through which hackers can penetrate our cars and take over critical systems like our steering wheels or brakes. Malicious actors could even take over a whole fleet of connected cars and cause urban mayhem. The nightmare scenarios are endless.

That’s why throughout Europe, new standards regarding Information Security, data distribution, emergency alerts systems and monetization will be rolling out in 2017. And that’s exactly what’s got the auto industry scrambling to deliver the very kind of innovation needed to keep up with these new regulations. In other words, these days, consumer protection is not coming at the cost of innovation, it’s driving it.

And consumers are more than happy to play along. In a business such as the auto industry where lives are at stake, consumers place strong value in governmental oversight and are willing to give regulators great leeway when it comes to their powers. With technology as disruptive, revolutionary and frankly, as scary as autonomous cars, outside regulation earns the industry critical consumer trust – and that hasn’t been lost on auto execs.

Driving innovation may be a new role for many regulatory bodies, associated more with stifling, laborious, bureaucratic processes than with cutting-edge industries.

Many shared economy startups, for example are still struggling with government involvement, arguing it poses a serious deterrent to growth. Uber has had to keep regulators at bay since its inception, whether through exploiting small system loopholes, or engaging in outright legal battles. By identifying themselves as a radio dispatch car service instead of a taxi company, for example, they attempted to circumvent the need for official regulatory approval – with results that are still being disputed.

The reason why Uber, Airbnb, and the like have been confronted by regulators probably depends on who you ask. Governments might say that the transportation and lodging sectors carry complex legal and financial issues and are therefore subject to strict oversight; Uber and Airbnb execs might tell you privately that governments see them as a threat to traditional tax revenues.

Insurance tech is another emerging sector with plenty of regulatory stumbling blocks. A huge, conservative industry largely missed by disruption, many InsurTech startups have had difficulty launching due to regulatory delays. But the automotive industry seems to be paving the way towards a new relationship with regulators. As innovators hit the gas pedal, reinventing the connected car industry much in the way they reshaped so many other industries, the relationship with regulatory agencies seems to be taking a road less travelled – driving innovation in the auto industry while at the same time making sure first and foremost to protect the person in the driver seat.

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