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Analysis

Innovation leads, regulation follows

Future of risk series: Trend six

As the pace of innovation quickens across diverse industry sectors, it is becoming more difficult for regulations to keep up. Meanwhile, many businesses and other organizations are taking on high-risk innovations as a strategy—even when they fall outside the scope of existing regulations—and reaping the rewards. Increasingly, the rapid pace of innovation is driving the regulatory agenda.

What forces are driving this trend?

us-yellow-rabbit-icon.jpg (81×81) Rapid pace of proliferation of innovations
Growing adoption of new business models, such as sharing-based, freemium, and subscription-based, leading to increased diversity of competitors
Industry convergence and blurring of market boundaries
us-green-collaspe-in-arrows-icon.jpg (81×81) Deliberate restraint on the part of regulators in order to allow innovations to gain steam
us-gray-growth-chart-icon.jpg (81×81) Growing consumer activism and empowerment

 

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What are the opportunities?

  • Reduce regulatory risks by educating regulators and harnessing customer and public support
  • Work with the industry ecosystem to establish self-regulatory frameworks
  • Clarify the organization’s risk appetite when evaluating projects that lie outside the realm of current regulations

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What are potential threats and pitfalls?

  • Losses due to investments in projects that operate in legal gray areas that subsequently become prohibited
  • Fast-moving disruptive organizations can rapidly gain market share from incumbents before regulations are even put in place
  • Negative publicity from lobbying efforts against disruptive startups

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Case studies: Where is this trend already in play?

Companies such as Google are investing in building autonomous cars ahead of a regulatory framework, driving regulators to strategically balance their priorities around promoting innovation and ensuring public safety.1

Sharing economy-based businesses, such as Airbnb and Uber, are growing rapidly by breaking away from traditional industry norms and established assumptions built into regulations.2

Telemedicine, provided by companies such as Teladoc, enables doctors to offer primary care services over video conference. While telemedicine has been heralded as a way to increase health care access, it has required the renegotiation of relationships between insurers, physicians, and regulators, with many states not allowing reimbursements for video visits despite a shortage of doctors.3

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Explore the future of risk trends:

   

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1 “California isn’t ready for driverless cars,” Los Angeles Times, December 28, 2014, http://www.latimes.com/opinion/editorials/la-ed-driverless-cars-20141228-story.html; Rob Toews, “The federal government must act to ensure that the autonomous vehicle revolution takes place in the US,” Tech Crunch, January 17, 2016, https://techcrunch.com/2016/01/17/the-federal-government-must-act-to-ensure-that-the-autonomous-vehicle-revolution-takes-place-in-the-u-s/; Quinten Plummer, “Google asks feds to fast track regulations for self-driving cars,” Tech Times, March 20, 2016, http://www.techtimes.com/articles/142482/20160320/google-asks-feds-to-fast-track-regulations-for-self-driving-cars.htm.

2 Joe Harpaz, “Airbnb disrupts hotel economy, sends regulators scrambling,” Forbes, May 07, 2014, http://www.forbes.com/sites/joeharpaz/2014/05/07/airbnb-disrupts-hotel-economy-sends-regulators-scrambling/#25ce777b726d; Bruce Chew, Don Derosby, Eamonn Kelly, Bill Miracky, “Regulating ecosystems”, Deloitte University Press, April 15, 2015, http://dupress.com/articles/regulatory-framework-business-ecosystems-business-trends/; Finn Poschmann, “Taxation and regulation in the era of Uber and Airbnb present new hurdles for government,” Financial Post, April 01, 2015, http://business.financialpost.com/fp-comment/taxation-and-regulation-in-the-era-of-uber-and-airbnb-present-new-hurdles-for-government.

3 Jayne O’ Donnell, “Video visits blocked despite doctor shortage,” USA Today, December 07, 2014, http://www.usatoday.com/story/news/nation/2014/12/07/telemedicine-state-lawsrural-hospitals-specialists/70094828/; Lauren Silverman, “Texas puts brakes on telemedicine–and Teladoc cries foul,” NPR, June 02, 2015, http://www.npr.org/sections/healthshots/2015/06/02/408513139/texas-put-brakes-on-telemedicine-and-teladoc-cries-foul.

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