A rising star in HR benefits comes under scrutiny for skirting licensing requirements and jeopardizing its $4.5 billion valuation
Silicon Valley HR benefits startup Zenefits faces regulatory scrutiny from at least one state insurance regulator for allowing unlicensed insurance brokers to sell health insurance putting the company’s $4.5 billion valuation in jeopardy.
A BuzzFeed News investigation has found that Zenefits allowed insurance brokers in at least seven states to sell health insurance without a license, a clear violation of insurance licensing rules.
In California for example, Under California law, selling insurance without a valid license is a misdemeanor punishable by a fine of up to $50,000 or up to a year in prison. While every state has different interpretations of what constitutes “selling” insurance and the punishment for doing so without a license, all 50 states prohibit this practice putting the startup on the wrong side of the law.
“Whether you’re selling through an app or through a brick-and-mortar store, you have to be licensed” in every state in which you sell insurance policies, said Adam Beck, a professor of health insurance at the American College of Financial Services in Bryn Mawr, Pennsylvania. “Working for someone who happens to be licensed is not sufficient.”
How bad was Zenefits at keeping a lid on this practice? BuzzFeed has found the company’s compliance regime very much like Swiss cheese with almost no overview of its broker network.
“I made like $15,000 in the time I was there, just on commissions. And I never got my license,” an insurance salesperson who left Zenefits this summer told BuzzFeed. “I took my test three times in a row, and I failed. They still let me work.”
That’s really bad news for a company with prominent investors such as Ashton Kutcher (actor), Jared Leto (musician/actor), Fidelity, private equity stalwart TPG and venture capital firm Andreessen Horowitz, who’ve invested more money in Zenefits than any of its other portfolio companies.
The more mudslinging that takes place between the company and state insurance regulators is bound to put downward pressure on its lofty valuation – perhaps even threatening its very existence.
That’s a big fall for a company Forbes called the “hottest startup of 2014” and Business Insider predicted was the startup “to bet your career on in 2015.”
A BuzzFeed News investigation has found that Zenefits allowed insurance brokers in at least seven states to sell health insurance without a license, a clear violation of insurance licensing rules.
In California for example, Under California law, selling insurance without a valid license is a misdemeanor punishable by a fine of up to $50,000 or up to a year in prison. While every state has different interpretations of what constitutes “selling” insurance and the punishment for doing so without a license, all 50 states prohibit this practice putting the startup on the wrong side of the law.
“Whether you’re selling through an app or through a brick-and-mortar store, you have to be licensed” in every state in which you sell insurance policies, said Adam Beck, a professor of health insurance at the American College of Financial Services in Bryn Mawr, Pennsylvania. “Working for someone who happens to be licensed is not sufficient.”
How bad was Zenefits at keeping a lid on this practice? BuzzFeed has found the company’s compliance regime very much like Swiss cheese with almost no overview of its broker network.
“I made like $15,000 in the time I was there, just on commissions. And I never got my license,” an insurance salesperson who left Zenefits this summer told BuzzFeed. “I took my test three times in a row, and I failed. They still let me work.”
That’s really bad news for a company with prominent investors such as Ashton Kutcher (actor), Jared Leto (musician/actor), Fidelity, private equity stalwart TPG and venture capital firm Andreessen Horowitz, who’ve invested more money in Zenefits than any of its other portfolio companies.
The more mudslinging that takes place between the company and state insurance regulators is bound to put downward pressure on its lofty valuation – perhaps even threatening its very existence.
That’s a big fall for a company Forbes called the “hottest startup of 2014” and Business Insider predicted was the startup “to bet your career on in 2015.”
