Cloud HR platform Zenefits may have allowed salespeople to illegally act as insurance agents in at least seven states. According to a BuzzFeed investigative report, the startup let unlicensed brokers sell health insurance, leading to at least one commissioner to investigate in Washington State.
Those unlicensed solicitations go back to at least the summer of 2014, and the Washington State office of the insurance commissioner started looking at the potential violations earlier this year, according to the report.
This is not the first time Zenefits has faced legal scrutiny for possible insurance violations. The Utah Insurance Department took the startup to task over claims it was illegally giving insurance software away for free. Regulators at the time said that the company violated local laws and that it was unfair to traditional insurance brokers.
Utah legislators threw out the complaint and let Zenefits get back to business after both the Utah House and Senate overwhelmingly voted to let the startup continue operations.
The broker license violation looks a bit more serious and could be considered a Class B felony, under Washington State law. Violators may be subject to a prison sentence of up to 10 years as well as face a $20,000 fine.
According to the report, Zenefits execs may have known about the violations and were aware of the consequences, but were prompted to get sales agents licensed in the state only after learning of the insurance commission’s investigation.
State records show 22 agents became licensed brokers just days after the report said Zenefits realized there was a state inquiry. The startup has since launched a “license management system” to help track which sales agents are properly licensed.
“Zenefits’ policy is that every individual who sells insurance at Zenefits, as well as the company itself, must be licensed to sell insurance,” Zenefits spokesperson Kenneth Baer told TechCrunch. “Zenefits has more than 280 active resident insurance licenses and more than 2500 active non-resident licenses, and these licensed brokers have sold thousands of insurance policies over the past two-and-a-half years. Any allegations of individuals violating our licensure or other compliance policies will be thoroughly investigated, and we will take appropriate remedial action.”
This is not a good time for Zenefits to have bad news. The investigation comes at a time when the startup is under the microscope for its current paper valuation. Zenefits, worth $4.5 billion on paper, missed revenue goals recently and has had to trim some internal fat – cutting pay for some and losing dozens of others, including at least eight executives.
Zenefits planned to bring in $100 million in revenue, up from $20 million the previous year, by the end of 2015 but reportedly wasn’t even half there in August. Fidelity, an investor in the startup, recently marked Zenefits down by 48 percent, suggesting a value closer to $2.34 billion.
The HR platform just launched a payroll platform to take on ADP and others and bring in new revenue from the pro version of the offering. But it’s too early to tell if that will put the startup back on track.
We’ve reached out to the Washington State office of the insurance commissioner for more info. We will be sure to update you if we hear back.