San Francisco-based startup Zenefits is drawing regulatory scrutiny in Minnesota related to the company’s past work as a health insurance broker.
Zenefits drew media and investor attention for its software, which was designed to streamline the handling of benefits and other human resources tasks such as payroll for small business owners. But to sell health insurance, brokers must be licensed. Investigators in several states are reviewing if Zenefits sold health insurance without being licensed to do so.
In February, Zenefits disclosed past problems with the company’s compliance with license requirements and announced that it would be sharing the results of an internal investigation to regulators across the U.S.
“Minnesota did receive a report from Zenefits about its internal investigation and we are part of a multistate inquiry into Zenefits insurance practices,” said Ross Corson, spokesman for the Minnesota Department of Commerce. The department regulates the insurance industry in Minnesota.
Noting the ongoing nature of the inquiry, Corson said that he could not comment further.
In February, the California Department of Insurance announced that it was investigating “Zenefits’ business practices and compliance with California law and regulations.” Open investigations are also underway in Massachusetts and Washington state.
The company says that it is working with regulators on previous compliance issues.
“We continue to work with our regulators, including the Minnesota Department of [Commerce], to resolve our historical licensing issues. As with other states, we have reported to the Minnesota [Department of Commerce] the results of the review by a Big Four accounting firm that looked at our prior licensing non-compliance. They also evaluated the design of our new licensing controls and found them effective to prevent future licensing non-compliance,” said Jessica Hoffman, a spokeswoman for Zenefits.
It is not clear how many Minnesota business owners have been using Zenefits. The company currently has 20,000 accounts across the country.
Zenefits web site includes the logos of many health insurers, including UnitedHealthcare, a subsidiary of Minnetonka-based UnitedHealth Group. A representative of UnitedHealth Group could not be reached for comment.
As the troubles at Zenefits came to light, founder CEO Parker Conrad resigned on February 8.
David Sacks, the company’s new CEO, has been working to overhaul the business and bring a new culture to Zenefits. In a blog post last week, Sacks noted: “We have to be the Compliance Company
. Over the past three months, we have worked hard to become this company. This transformation is still underway and there is still some work to do. But we have brought our licensing into compliance.”