Are Municipalities Prepared for the Disruption from Technology?

While we can anticipate the implications of autonomous vehicles and automation within the Property/Casualty insurance industry, there may also be broad societal implications that could impact state and municipal governments.

Burgeoning advances in automation, artificial intelligence (AI) and robotics could result in economic and societal disruption as businesses and municipalities incorporate artificial intelligence and/or robotics into their operations to cut costs and improve efficiencies. This automation economy has already begun in the United States: 5.6 million manufacturing jobs were lost between 2000 and 2010. Eighty-five percent of those job losses were due to automation. This trend will only accelerate.

Some refer to this economic shift as the “fourth industrial revolution.” This moniker, however, really fails to describe the speed and breadth of the potential changes coming to other industry sectors, and society as a whole, as automation will impact a wide variety of both blue and white collar jobs.

Job Disruption from Autonomous Vehicles

The potential for job disruption caused by the advent of autonomous vehicles has been widely discussed in the media, including projections that an estimated 4 million driving jobs are at stake. But beyond the hype, look at what’s occurred with regard to autonomous vehicles in the U.S. just since the beginning of 2018

  • Several companies – including Waymo, Uber, Tesla and Starsky Robotics – have launched, or have already begun hauling, cargo in autonomous semi-trucks. These vehicles are rolling on highways in California, Nevada, Florida, Georgia and Texas. Other companies, such as Udelv, are testing driverless trucks to autonomously handle the last mile of deliveries.
  • Consulting firm McKinsey & Company has recently predicted that in less than a decade, 80% of all items will be delivered autonomously.
  • California and Arizona are allowing autonomous cars to begin ride-sharing services with no human backup drivers in the vehicles.

Jobs Lost Due to Automation

On a broader scale, several recent studies have discussed the potential job losses arising from automation:

  • A Vanguard economist found that every industrial robot replaces up to six jobs, which puts some six million jobs at risk of being lost to over the coming decade.
  • McKinsey & Company suggests that “by 2030, 23% of current work activity hours could be automated.”
  • A 2017 Forrester research study concluded that “in 2018, 9% of U.S. jobs will be lost to automation, partly offset by a 2% growth in jobs supporting the “automation economy.”

Impact of Automation on Unemployment Rates

Even with 2% job growth, many experiencing job displacement will not have the skills to take advantage of it. Many of these new jobs will go to those with degrees in AI, robotics, computer programming, mechanical engineering and coding, etc. We have no precedent for anticipating the pace or prevalence of this new wave of occupational disruption.

In the past, with a modest training investment, workers could migrate from one kind of manual labor to another. Now, however, the required training investment to move from manual labor skills to robotics or programming is greater, and will require a larger investment of time and money on the part of the worker.

When the U.S. economy experiences higher unemployment rates, a broad range of economic factors can be affected along with it, including discretionary spending, local business formations and home ownership. Consider the 2007-2008 financial crisis: The economy experienced significant increases in unemployed and under-employed workers; a significant decrease in new home building; a broad-based economic contraction, seen in sharply reduced new business start-up rates; a dramatic reduction in “over the road” mileage for truckers and commuters, resulting in lower numbers of accidents; and significantly reduced new or leased car purchases. All of these effects were in addition to the obvious fallout from over-leveraged homeowners, the wave of foreclosures that ensued and the impact on local businesses.

Driverless vehicles, AI and robotics are also finding their way into many other sectors: construction, farming, retail, food services, financial services and the insurance industry. While we can anticipate the implications for classes of business within the Property/Casualty insurance industry, there may also be broad societal implications that could impact state and municipal governments.

Impact of Automation on State and Municipal Government

In addition to both the strain on local businesses and broad societal implications, this new wave of automation will also have an impact on state and municipal revenue streams, including:

  • Planning and zoning
  • Real estate
  • Mass transit
  • Road maintenance and construction
  • Higher education
  • Crime

These technological advances hold the potential to disrupt the status quo with regard to the revenues and expenses of governmental entities. Now more than ever, these entities will need to pay close attention to the trends and inflection points as they present themselves in the data they use to project and manage their budgets. Old patterns may not be as predictive as they were historically.

Charlie Kingdollar is a Global Emerging Issues Officer at Gen Re P&C, a division of Genesis Management and Insurance Services Corporation. This material reprinted by permission.

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