Texas Fines Zenefits $550K for Using Unlicensed Brokers

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., known as Zenefits, used unlicensed staff to sell and administer insurance plans from 2014 through late 2015. Launched in 2013, Zenefits provides online human resources, insurance and benefits services to small business clients.

The company is now in compliance and is using staff licensed in Texas for insurance transactions in the state, TDI said.

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

David Sacks has replaced Conrad as CEO.

Texas regulators said the regulatory actions “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.”

The 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 … Zenefits employees did the business of insurance in Texas when they were not authorized to do so.”

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

Zenefits earned $1.6 million in commissions on Texas transactions using unlicensed staff, according to TDI.

The company now has created a compliance team and confirmed that all employees who could potentially do insurance business in Texas are licensed, TDI reported. It is paying for an independent review of past transactions, as well.

Zenefits has cut more than 350 jobs this year. The company said it made the cuts because it is now focused on the small business market rather than large corporate clients.