Texas Insurance Officials Fine Zenefits $550K for Noncompliance

By | October 14, 2016

The Texas insurance regulators have fined human resources software startup, Zenefits, $550,000 for its past use of unlicensed health insurance brokers.

The Texas Department of Insurance said YourPeople Inc., more commonly known as Zenefits, used unlicensed staff to sell and administer insurance plans from 2014 through late 2015.

Launched in February 2013, Zenefits provides web-based human resources, insurance and benefits services to small business customers.

The company has since come into compliance with state law and is using staff licensed in Texas for insurance transactions in the state, TDI said.

Zenefits has been investigated and fined in other states for similar compliance issues, including California, Massachusetts, Tennessee and Washington. The investigations led to the resignation earlier this year of its co-founder and chief executive officer, Parker Conrad, and in July Zenefits reached a settlement with the Tennessee Department of Insurance and Commerce, agreeing to pay a fine of $62,500.

Texas regulators said the commissioner’s order and fine “follow a months-long investigation into the business practices of the California-based company, which provides online human resources and benefits services. While the company’s owner was licensed in Texas, employees who were actually selling and administering insurance plans were not licensed.”

From Jan. 1, 2014, through Nov.20, 2015, Zenefits earned $1.6 million in commissions on Texas transactions using unlicensed staff, according to TDI.

In addition to dismissing its former CEO, Zenefits has created a compliance team and confirmed that all employees who could potentially do insurance business in Texas are licensed, TDI reported.

‘New controls have been implemented to ensure only employees with the required license handle insurance transactions, as well. The company is also paying for an independent review of past transactions.

Texas order number 2016-4717 states that “Zenefits experienced rapid growth after launching in 2013. In its first few years Zenefits’ corporate culture and values were not focused on compliance with state licensing requirements. … Therefore, on a multitude of occasions over the first two years, Zenefits employees did the business of insurance in Texas when they were not authorized to do so.”

According to the order, Zenefits has admitted “it initially failed on the corporate level to put in place compliance measures to maintain the proper authorizations.”

David Sacks replaced Conrad as CEO in February 2016. Reuters reported at the time that Sacks told employees in a letter, “that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong.”

Reuters also reported that Zenefits has cut more than 350 jobs this year. The company said it made the cuts because it is now focusing on the small business market as opposed to large corporate clients.


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