Zenefits settles licensing issues in South Carolina, Delaware

The company had been accused of allowing its salespeople to act as insurance brokers in a number of states despite lacking the proper licenses.
Written by Natalie Gagliordi, Contributor

Zenefits CEO David Sacks took to Twitter on Friday to announce that the company has resolved its licensing issues with two more states: South Carolina and Delaware.

For background, Zenefits, a SaaS startup that helps small businesses manage health insurance coverage for employees, was accused of allowing its salespeople to act as insurance brokers in a number of states despite lacking the proper licenses.

The controversy led to the ousting of Zenefits founder Parker Conrad as CEO and a slew of state investigations, ongoing fines, and bad press. Just a few weeks ago, the Tennessee Department of Commerce and Insurance imposed a $62,500 fine on Zenefits for allowing unlicensed brokers to sell insurance in the state.

Today, however, Sacks said at least some of those disputes have been resolved:

Zenefits' licensing has been compliant since I took over as CEO but we needed to resolve the question of historical violations. We will pay a fine of $29,500 in South Carolina and no fine in Delaware. There will be no restrictions on our ability to operate.

Delaware could have fined us, but chose not to, because we self-reported the issue and took corrective measures. We appreciate this recognition by regulators ("righting the ship" in the words of TN commissioner) and are happy to be moving on as a company.

Now we're focused on delivering more game-changing innovation for our 20,000 small biz customers in All-in-One HR -- a category we created.

Sacks has been key to the company's turnaround efforts and its quest to rebuild its reputation. When Sacks took over in February, his first action as CEO was about culture and company values. In an email sent to employees, Sacks acknowledged the increasingly toxic employee culture throughout the company, and how it had "been inappropriate for a highly regulated company."

Externally, Zenefits has tried to prove that it's more than willing to toe the line when it comes to following state regulations.

In June, Zenefits revealed that it had built software controls into its sales system that automatically verifies licensing status and blocks accounts from being assigned to a brokers who do not hold valid insurance licenses in the correct state. The app also helps manage license renewals and prevents brokers from transacting until their renewal is processed.

The company also created the position of chief compliance officer and put together a compliance team for more oversight and accountability.

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