After a rocky relationship with regulators, software startup Zenefits has announced that it is changing its business model to provide software to insurance brokers.

Insurance Broker reports that the company, which had been hit with regulatory penalties for problems ranging from unlicensed employees selling insurance to overoptimistic revenue projections, will no longer act as an insurance broker, but instead will furnish software to brokerages that sell insurance benefits to companies — for a cut of the revenue.

According to the report, Zenefits, founded in 2013 and based in San Francisco, originally provided free software for businesses to automate their human resources services such as hiring and payroll. Back then it made its money by acting as a broker and selling companies health insurance plans.

That ended, however, when it was discovered that employees selling health insurance had been doing so without the proper licensing. Regulators investigated the company, which was hit with fines from a number of states, including California, Massachusetts, Tennessee, Texas and Washington. California’s $7 million penalty was one of the largest ever assessed in the history of the California Department of Insurance.

It even had to cut its own valuation from $4.5 billion to $2 billion to forestall investor litigation.

Now, however, while it will retain and even build on its HR software, there won’t be any more free rides. Instead, it has already begun to charge for some of its services.

Chief Executive Jay Fulcher, who in February became Zenefits’ third CEO in a year, says in the report that Zenefits’ expertise is in software, not insurance brokerage, and the startup suffered from not having brokers in local markets to meet with businesses and explain insurance options face to face.

The company currently has about 500 employees, despite laying off nearly half its workers in February. The year before, it had a staff of three times its current size.

Instant Insights /

Zenefits shifts gears, offers benefits software to insurance brokers

More From HR Executive

Related Stories

Recommended For You