Zenefits Fined $7 Million Over Insurance Sales

A California regulator says the HR software startup cut licensing corners so it could expand more quickly in the insurance market.
Matthew HellerNovember 29, 2016
Zenefits Fined $7 Million Over Insurance Sales

HR software startup Zenefits has agreed to pay $7 million to settle charges that it allowed unlicensed employees to sell insurance and circumvented training requirements for insurance agents.

The fine is one of the largest penalties the California Department of Insurance has assessed for licensing violations in its history and exceeds others that Zenefits has agreed to pay to resolve other states’ investigations of its sales practices.

The company provides free HR software and makes money brokering health-insurance benefits to the software users. It was widely considered to be one of the hottest tech startups in Silicon Valley before it ran into trouble over allegations its employees were not meeting training and licensing requirements.

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“Zenefits is an example of an internet-based startup whose former leaders created a culture where important consumer protection laws were broken — a bad strategy that placed the company at risk and that other startups should not follow,” California Insurance Commissioner Dave Jones said in a news release.

The regulator launched its investigation of Zenefits last year after receiving complaints that employees were transacting insurance without a license. According to a statement of the charges, at least 1,994 of the 8,118 policies it sold from January 2014 through November 2015 were transacted by unlicensed employees.

Zenefits’ practice of selling policies through unlicensed employees allowed it to avoid or delay incurring costs, fees, and other expenses associated with licensing and “expand in the marketplace more quickly,” the statement said.

The department also faulted Zenefits for using a software “macro” developed by founder and former CEO Parker Conrad that enabled employees to complete the pre-licensing training course in less than the required minimum time. Conrad resigned in February.

Half of the $7 million fine will be waived if Zenefits passes an examination of its business practices scheduled for 2018. “We now have a clean bill of health from our lead regulator as well as 16 other states,” a Zenefits spokeswoman said.