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Zenefits Shifts Business Model After Regulatory Crackdown

More than a year after state regulators in Washington and California issued fines against enterprise HR software startup Zenefits, the company is looking to revamp its operations under a new CEO by changing business models.

Reports Friday (Sept. 22) said Zenefits will no longer provide health insurance brokerage services, but instead provide software directly to insurance brokers, a distinct shift from trying to replace traditional brokers to working with them.

According to news from ReutersZenefits will co-market and co-sell with select national brokerage partners, the first of which is OneDigital.

The shift follows the company’s decision to hire Jay Fulcher as its new chief executive officer — the company’s third CEO — and after state regulators levied fines against the company for bypassing insurance laws. Zenefits proactively notified all 50 states regarding historic compliance problems prior to state regulators levying the fines, however.

Last December, Washington State Insurance Commissioner Mike Kreidler demanded that the company cease free distribution of its employee benefits insurance software on grounds it violated the state’s health insurance laws against inducements. In October, the company was fined $100,000 from Kreidler’s office, while other fines varied state-to-state. California lawmakers, for example, also issued a $7 million fine.

Early last year, former CEO Parker Conrad resigned following revelations the company’s unlicensed employees were selling health insurance. Soon after, David O. Sacks assumed the role, but last December false reports surfaced that he would leave to take a position within President Donald Trump’s administration. These reports and rumors were repeatedly denied by Sacks and Zenefits spokespeople commenting on his behalf, and were ultimately disproven.

Current CEO Jay Fulcher said the HR software company is now looking to move beyond these controversies. The company will plan to maintain its human resources software but will no longer offer it for free. The freemium model was phased out in February, replaced by a tiered, paid model. Zenefits will continue to transfer an estimated 8,700 customers to OneDigital, the first insurance broker to be working with Zenefits under the new business model.

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