Zenefits reaches first settlement with state regulators as it works to rebuild its corporate culture
Zenefits reached its first of what could be many settlements with state regulators this week, agreeing to pay the state of Tennessee Department of Commerce and Insurance (TCDI) a fine of $62,500 for violating insurance requirements by allowing unlicensed employees to sell health insurance.
The San Francisco-based company, which is under investigation in at least three other states for the same issue which led to the February resignation of former CEO and co-founder Parker Conrad – will be allowed to continue selling insurance in Tennessee.
In an email to employees released by Zenefits, current CEO David Sacks said the settlement was a “tough but fair” and a “watershed moment” that could help the company reach similar agreements in other states where it is under investigation, including Washington, Massachusetts and California. Zenefits “self-reported” potential infractions to regulators in every state on March 1.
“Under the company’s past leadership, compliance with insurance laws and regulations was almost an afterthought,” said TDCI Commissioner Julie Mix McPeak in a news release this week. “Fortunately, new company leadership has demonstrated a dedication to righting the ship. They have instituted new and enhanced agent training requirements as well as licensing controls to ensure that company employees comply with state licensing laws. They employed a reputable outside firm to help test and confirm these new procedures.”
Among such remediation efforts is a new company mandate that all insurance producers complete 52 hours of continuing education courses, including 12 hours of ethics training. Technical controls will also confirm the license status of a producer before he/she begins selling insurance to a potential Tennessee client.
“Zenefits self-reported its violations and cooperated throughout the Department’s investigation,” said TDCI Assistant Commissioner Michael Humphreys. “The State of Tennessee takes unlicensed activity very seriously, and TDCI will continue to do everything in our power to protect consumers.”
The Wall Street Journal reported this week that in June Zenefits announced an agreement with some investors to reduce the price they paid for shares in the high-profile startup in exchange for a release from any legal claims the investors might bring following its licensing issues and missed sales targets. That agreement gives investors additional shares in the company, reducing its valuation to $2 billion. Zenefits had achieved a $4.5 billion valuation in a May 2015 funding round, just two years after being founded.
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