Zenefits penalized $7 million in California for insurance licensing violations

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The California Department of Insurance has fined human resources and health benefits company Zenefits $7 million for “multiple license violations,” the department announced today. The department specifically charged Zenefits with allowing unlicensed employees to sell insurance and with circumventing the required pre-licensing education and study requirements.

“Businesses and consumers should have confidence that anyone selling insurance to them in California is doing so in compliance with our consumer protection laws,” Insurance Commissioner Dave Jones said in a release. “Our enforcement action has resulted in Zenefits paying substantial monetary penalties for their licensing violations and ensures Zenefits complies with all of California’s insurance laws and regulations or they will face additional automatic penalties and sanctions.”

Zenefits has settled similar investigations in other states for improper insurance sales methods. Before today’s announcement, Zenefits had paid out about $300,000 in settlements in six states, Zenefits CEO David Sacks said at TechCrunch Disrupt SF 2016.

Zenefits’ troubles began last November, when BuzzFeed reported that Zenefits let salespeople act as insurance brokers and didn’t have the licenses to do so. A few months later in February, Zenefits then-CEO Parker Conrad exited the company amid the company’s compliance and regulatory issues. In an attempt to get Zenefits back on track, Sacks said he fast-tracked a licensing compliance application when he became CEO. In October, Zenefits released a licensing compliance app to ensure its sales people were properly licensed to sell insurance in a given state.

“In California, we value innovation and new business models, including Internet based start-ups, but we also insist that consumer protections laws are followed,” Jones said. “Zenefits is an example of an Internet based start-up 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 start-ups should not follow given our strong consumer protection laws and the Department of Insurance’s rigorous enforcement of those laws.”

Zenefits has agreed to comply with the settlement, which includes a $3 million fine for licensing violations, a $4 million fine for skipping out on the pre-licensing education and a $160,000 fine in order to reimburse the department for its time spent investigating and examining the violations. Zenefits will only have to pay half of the $7 million fine ($3.5 million) as long as the company continues to comply with licensing and regulatory mandates.

Update (11/28/16 4:34pm) “We are pleased to reach a settlement with the California Department of Insurance, which recognized our remediation efforts by suspending half the fine,” a Zenefits spokesperson told TechCrunch. “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. We’ve moved past these historical issues, and now we’re focused on serving our 20,000+ customers and delivering All-in-One HR to small businesses.”