Zenefits incurs $7M penalty for licensing violations

Zenefits, a software startup based in San Francisco, has been fined $7 million by California's insurance regulator for multiple license violations.

California Insurance Commissioner Dave Jones said in a statement that Zenefits was charged with allowing unlicensed employees to transact insurance and circumventing insurance agent education requirements. He said this is the largest penalty assessed by any commissioner against Zenefits and among the largest penalties for licensing violations ever assessed in the history of the department.

The company provides automated human resources software solutions for companies, including healthcare benefits and investment options.

"Businesses and consumers should have confidence that anyone selling insurance to them in California is doing so in compliance with our consumer protection laws," Mr. Jones added in his statement. "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."

A spokeswoman for Zenefits did not immediately respond to a request from Reuters for comment.

The California Department of Insurance began investigating Zenefits last year, following allegations the company was using unlicensed brokers to sell healthcare coverage.

The company subsequently announced they would not comply with insurance laws and regulations, which was followed by the resignation of Zenefits' CEO, Parker Conrad, said Mr. Jones. David Sacks replaced Mr. Conrad as the company's CEO.

Mr. Jones said in the statement that the $7 million settlement agreement obtained by the insurance commissioner includes a $3 million penalty for licensing violations, a $4 million penalty for subverting the pre-licensing education and study-hour requirements for agent and broker licensing, and a $160,000 payment to reimburse the California insurance department for investigation and examination expenses.

As a result of the self-reporting and remedial actions already implemented by Zenefits, the settlement suspends half of the total penalties, Mr. Jones said. He added, "The suspended portion of the monetary penalty will be reinstated if Zenefits fails to confirm continued compliance with licensing and regulatory mandates based on an examination of the company's business practices to be conducted in 2018."


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