Washington State Insurance Commissioner Mike Kreidler has ordered insurance startup Zenefits to stop providing free use of its software in the state. The Commissioner issued a release detailing the order on Thursday, and explaining that the block on a completely free product is a result of Zenefits violating the state’s inducement laws, which prevent any one provider from acts that significantly undermine the competitiveness of the rest with extreme incentives.
“The inducement law in Washington is clear,” Commissioner Kreidler said in a statement accompanying the order. “Everyone has to play by the same rules.”
As a result of the order, Zenefits has worked out a compromise with the State whereby it will offer its software on a paid basis, at a rate of $5 per employee per month.
Zenefits was fined by the Commissioner perviously in October 2016, with a penalty totalling $100,000 as a result of its prior practice of skirting licensing requirements in the state, which ended prior to the exit of then-CEO Parker Conrad. Under current CEO David Sacks, Zenefits has been eager to rebuild its reputation and play by local licensing rules for insurance brokers in earnest.
Kreidler said in remarks accompanying the order that Zenefits has until January 1, 2017 to implement an acceptable fee to charge users of its product, in accordance with its annual value of between $29,100 and $45,000 per year, in order to return to compliance with the state’s inducement laws. The compromise agreed upon by Zenefits and the commissioner will be a $5 per user per month fee, as mentioned above.
Zenefits, in a letter to customers republished by Business Insider by its lawyer Josh Stein. In the statement, Stein still says Zenefits believes that use of the inducement laws to compel the startup to charge a fee is “counterintuitive and wrong.”
Earlier this week, Zenefits was handed a $7 million penalty for violating insurance provider licensing regulation in California. The company said it was pleased to have reached a settlement with the state, and noted that it’s required to pay only half because of its good faith efforts to comply with regulation going forward.