In December, the Washington State Insurance Commissioner ordered Zenefits to charge a market price for “use of its online, cloud-based, software platform that integrates the administration of human resources, payroll, and employee benefits.” The Commissioner found that “free access to valuable software functions” constituted an illegal inducement to purchase insurance. Competing insurance brokers complained to the Commissioner that Zenefits’ offer of free “payroll” services unrelated to insurance services crossed a competitive line.
The Commissioner’s order assumed that Zenefits would seek legislation changing the statute upon which the Commissioner relied in finding a violation.
“[Zenefits] will begin to charge all Washington customers for the previously free apps and functionality of its software platform by offering it as part of a paid service sold at fair market The Licensee will continue to charge for the previously free apps and functionality of its software platform until the earlier of: (I) the entry of a final, unappealed administrative or judicial order rejecting the Insurance Commissioner’s findings, conclusions, or legal interpretations set forth in paragraphs 4-6 of the foregoing factual Basis; or (2) a legislative act clarifying that the Insurance Code allows the Licensee to stop charging for the previously free functionality of its software platform. Upon the occurrence of either event, this Consent Order shall be null and void.”
No surprise that the Washington State House and Senate have considered bills supported by Zenefits. Both HB-1185 and SB-5242 received public hearings during which Zenefits and the various insurance producer organizations testified. You can watch and listen the House public hearing and the Senate public hearing. House and Senate staff analysis of these bills can be found here and here.
Zenefits argued that small businesses were hurt by the Commissioner’s order, that Washington is an “outlier state” in restricting distribution of free software, and that Washington rules should recognize new technologies and and modern marketing. In contrast, most insurance producers and the Insurance Commissioner opposed the legislation.
Among the organizations testifying against these two bills were the Independent Insurance Agents, the Professional Insurance Agents of Washington and Alaska, the Washington Association of Health Underwriters, and the National Association of Insurance and Financial Advisors. Essentially, producer groups argued that negotiated changes two years ago to increase the limit on insurance producer “gifts” to customers from $25 to $100 sufficiently addressed market concerns. They argued that the legislation would substantially hurt insurance marketing and particularly, smaller insurance agencies.
Hmmm…any guesses on the outcome of the House and Senate bills?
