Home – Regulation Of Self-Driving Cars Picking Up Speed In States

Regulation Of Self-Driving Cars Picking Up Speed In States

 Early last year SNCJ reported that while the development of autonomous, or self-driving, car technologies by Google, Uber, Tesla Motors and others was “progressing rapidly,” state efforts to regulate the testing and operation of such vehicles were moving at “a more deliberate pace,” with only a handful of legislatures having addressed the issue. The pace of both trends has accelerated since then, with major implications for local governments and the auto insurance industry.

 

In January 2014 IHS Automotive forecast that annual global sales of self-driving cars would grow from about 230,000 units in 2025 to nearly 12 million units in 2035, by which time there would be close to 54 million vehicles with autonomous technology in use around the world. But last year IHS revised that forecast upward significantly, predicting global sales would reach nearly 600,000 units in 2025 and 21 million units in 2035, putting nearly 76 million such vehicles on the road worldwide.

 

“This is a substantial increase from previous sales estimates and is influenced by recent research and development by automotive [manufacturers] and supplier and technology companies who are investing in this area,” IHS said.

 

“Big Four” accounting firm KPMG, likewise, predicted in 2015 that self-driving cars would become the “new normal,” replacing the stock of traditional vehicles, by 2040. But the pace of autonomous vehicle development over the last two years outstripped that projection, and this past June KPMG shifted its timetable up by five years.

 

The pace of legislative activity on the issue has also sped up considerably over the past couple of years. As we noted in our March 2016 report, the number of states introducing bills related to autonomous vehicles has been “ticking upward: six in 2012, nine in 2013, 12 in 2014, 16 in 2015” and, ultimately, 20 in 2016. But 33 states have already introduced autonomous vehicle-related bills this year. Even more noteworthy, 14 additional states have passed legislation, and three more governors have issued executive orders, related to self-driving cars since our previous report. A slew of bills aimed at speeding the adoption of self-driving cars - some of which, as introduced, would preempt state laws - are also under consideration in Congress, but it remains to be seen if any of them will manage to break through that legislative body’s unyielding gridlock.

 

The state legislation addresses a range of issues, including insurance requirements for operating self-driving cars, privacy of collected vehicle data, vehicle cybersecurity, and “platooning,” the coordinated operation of a group of self-driving cars traveling in the same lane using vehicle-to-vehicle communication. In general, however, the enacted measures provide for the testing and operation of vehicles with autonomous technology on public roads under certain conditions, although a few only authorize studies of such vehicles. Of particular note, a few of the recent enactments deal with “fully autonomous” vehicles, and at least one, Nevada’s AB 69, chaptered in June, allows the operation of those vehicles on state roadways without a human operator present.

 

The requirement that a licensed driver be at the wheel was one of the main points of contention with the autonomous vehicle deployment regulations proposed by California’s Department of Motor Vehicles in 2015, in accordance with legislation passed by the state in 2012 (SB 1298). Google, which has been focusing its efforts on the development of a completely driverless car with no gas pedal, brake pedal or even a steering wheel, said its testing showed that humans aren’t a good backup for self-driving car technology because when they get used to it, they stop paying attention to the road. A licensed driver requirement also precludes the use of self-driving cars by those with disabilities who are dependent on others even for “simple errands,” Chris Urmson, then-director of Google’s Self Driving Car Project, wrote in a blog post after the release of California’s draft deployment regulations.

 

“This maintains the same old status quo and falls short on allowing this technology to reach its full potential, while excluding those who need to get around but cannot drive,” he wrote.

 

California DMV spokeswoman Jessica Gonzalez said at the time that the state’s caution didn’t mean it opposed the technology.

 

“We’re definitely not against it,” she told Bloomberg Business. “We just need to make sure that it’s safe.”

 

California has since passed AB 1592, authorizing a pilot program for the testing of fully autonomous vehicles in one of the state’s more populous counties, Contra Costa, located in the San Francisco Bay Area. Connecticut passed similar legislation this year, SB 260, providing for a pilot program to test fully autonomous vehicles in up to four municipalities in that state.

 

The increase in state legislative activity may have been spurred in part by the $4 billion in federal funding for autonomous vehicle pilot programs included in President Obama’s FY 2017 budget proposal, as well as the policy guidance for the safe development of such vehicles issued in January and September of last year by the National Highway Traffic Safety Administration.

 

“Ninety-four percent of crashes on U.S. roadways are caused by a human choice or error,” NHTSA Administrator Dr. Mark Rosekind said in a press release. “We are moving forward on the safe deployment of automated technologies because of the enormous promise they hold to address the overwhelming majority of crashes and save lives.”

 

That promise and other potential benefits from self-driving cars, including the prospect of reducing greenhouse gas emissions, improving mobility and providing a new revenue stream to help offset dwindling gas tax revenues, are likely to keep state legislatures green-lighting the vehicles’ operation.

 

States’ increasing willingness to allow self-driving cars on the road and the accelerating pace of the vehicles’ development, however, could be costly for local governments across the country. Municipalities derive a sizeable chunk of their revenues from auto-related sources that are largely dependent on the current stock of mostly gas-powered, human-driven vehicles. Collectively, the 25 largest U.S. cities took in almost $5 billion - or about $129 per capita - in auto-related revenues, including parking fees and citations, traffic violations, gas taxes and license and registration fees, in 2016, according to analysis by Governing.

 

That analysis also showed that cities with the highest car-related revenues per capita - and consequently, those likely to incur the biggest revenue losses in the event of a major shift to electric-powered, fully autonomous vehicles - were densely populated ones where parking is in high demand, such as San Francisco, which collected $512 per capita in auto-related revenues last year, and Washington, D.C., which took in $502 per capita.

 

Governing said revenue reductions might hardly be noticeable, however, in cities like Dallas, Houston and San Antonio, with per-capita, auto-related revenues of $13.5, $14.6 and $14, respectively, largely because Texas shares virtually none of its gas tax or vehicle license and registration fee collections with local governments. Governing also noted there would potentially be cost savings in any city where significant numbers of autonomous vehicles operated, from the reduced need for traffic enforcement, for example. Still, Governing said over the long term revenue hits “seem inevitable,” adding that Lois Scott, a former chief financial officer for the city of Chicago who has been studying autonomous vehicles, expects cities to lose 10 to 15 percent of their operating revenues, on average.

 

“The combination of an electric vehicle world and the sharing economy will have a powerful impact,” she said.

 

The impact of those two forces on the auto insurance industry could be even greater. KPMG predicts that self-driving cars “could reduce the frequency of auto accidents by almost 90 percent by 2050.” And the company said that trend could combine with two other potential developments to create a “perfect storm” of disruption in the auto insurance marketplace. One is a shift away from personal, individual car ownership to commercial, fleet ownership, as a result of mobility-on-demand and car sharing. The other is the assumption of accident risk by the companies developing self-driving cars - an action Google, Mercedes-Benz and Volvo have already taken with their vehicles when they’re in autonomous mode, according to Nerd Wallet - and the consequent displacement of auto insurers. In KPMG’s “Perfect Storm Scenario,” “total losses could decline by 71 percent or approximately $137 billion,” with most of that hit being taken by “the personal auto insurance segment,” which “could erode to only 22 percent of total sector losses by 2050.”

 

“Insurance companies will have to make important strategic and tactical changes sooner than anticipated to navigate through this turbulent transformation of the industry,” Jerry Albright, a principal in KPMG's Actuarial and Insurance Risk practice, said in a press release.

 

What, specifically, those changes will be isn’t clear, although KPMG Corporate Finance LLC’s managing director, Joe Schneider, said auto insurers “may choose to branch out into home-related products, or other commercial coverage, to benefit from diversification,” while management consulting firm McKinsey & Company said they “might shift the core of their business model, focusing mainly on insuring car manufacturers from liabilities from technical failure of their AVs, as opposed to protecting private customers from risks associated with human error in accidents.”

 

What appears more certain is that the technological transformation of the automobile, with all of its potential benefits and challenges, is only going to continue.