Zenefits fined up to $7 million by insurance officials


The California Department of Insurance announced a settlement Monday with a San Francisco startup that will fine the company up to $7 million for insurance sales licensing violations.

The company, Zenefits, provides online employee benefits and payroll management software for small businesses and also acts as an insurance broker to sell group health and life insurance.

It was founded in 2013 and now has more than 20,000 small businesses in 50 states as its clients, according to the company.

The penalty includes $3 million for allowing unlicensed agents to sell insurance and $4 million for using a computer program to circumvent education requirements for its employees to receive a license.

The program enabled workers to complete a licensing course in fewer study hours than required, by advancing the course timer even when the employee was not actively studying.

Insurance Commissioner Dave Jones said that because Zenefits has taken steps to reform, he is suspending half the fine for at least two years.

If Zenefits is found not to have any significant licensing violations after two years, he will waive half of the fine, or $3.5 million.

The company’s reform measures include reporting the problems to the department beginning in November 2015, replacing co-founder Parker Conrad as chief executive officer in February, retraining its insurance sales agents, and making sure that only licensed agents sell insurance.

The settlement also includes a $160,000 payment to the department for investigation expenses.

Jones said the penalty is one of the largest in his department’s history for licensing violations, and also the largest levied by any of the 17 states that have reached settlements with Zenefits thus far.

The other 16 states are Arizona, Delaware, Florida, Georgia, Idaho, Kentucky, Louisiana, Maryland, Minnesota, New Jersey, Oregon, South Carolina, Tennessee, Texas, Virginia and Washington, according to Zenefits spokesman Jessica Hoffman.

Jones said in a statement, “In California, we value innovation and new business models, including Internet-based startups, but we also insist that consumer protections laws are followed.”

“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,” Jones said.

Zenefits stated, “We are pleased to reach a settlement with the California Department of Insurance, which recognized our remediation efforts by suspending half the fine.”

“We now have a clean bill of health from our lead regulator as well as 16 other states. New management has righted the ship at Zenefits,” the company said.


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