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SALT LAKE CITY — Utah insurance commissioner Todd Kiser recently banned an online insurance broker that was offering HR software for free from operating in the state.
Zenefits, based out of San Francisco, is a free website that allows small businesses to manage their hiring processes, payroll, taxes and benefits in addition to allowing small businesses to purchase health insurance for their workers through the site.
If the businesses decide to hand over management of their insurance to the company, Zenefits makes money, according to Tech Crunch.
In a letter Kiser sent to Zenefits Nov. 20, he ruled that Zenefits is unfairly competing with traditional brick-and-mortar insurance brokers, and ordered the tech-startup to cease offering its services to Utahns or impose a surcharge on its clients.
Kiser previously sent a letter to Zenefits in early June, informing it that the Utah Insurance Department had received complaints that Zenefits was offering services that are prohibited under §31A-23a-402.5 of Utah’s insurance code, which deals with insurance marketing and rebates, according to Beehive Startups.
Kiser said the code, a law that deals with insurance marketing and rebates, had been violated since Zenefits was offering its services for free, according to Tech Crunch.
"In Utah, we take very seriously our goal to lead the nation as the best performing economy and our reputation as the most business-friendly state," Gov. Gary Herbert said in a statement. "We also pride ourselves on our willingness to embrace innovation and have proactively eliminated outdated and unnecessary regulations. While we have to uphold the law on the books, there are times our laws must adapt to changes in the marketplace. With the legislative session just a few weeks away, I am willing to work with all stakeholders to ensure Utah has the right policy to embrace innovative ideas while protecting consumers."
We don't think the Utah state government should be setting prices for its businesses, so we're going to fight this with every ounce of strength we have.
–Parker Conrad, Zenefits co-founder
In response to Herbert, Conrad defended Zenefits' legitimacy in a statement.
"We welcome Governor Herbert's support of innovation and eliminating unnecessary regulations, but the fact remains that Zenefits is legal under existing Utah law," Conrad said in the statement. "Utah's Insurance Commissioner is stretching the law to ban Zenefits in Utah in order to protect incumbent insurance brokers from online competition. To maintain Utah's reputation as a business and tech-friendly state, we call on Governor Herbert to tell his insurance commissioner to apply the law fairly, and reverse this anti-competitive ruling. Governor Herbert, let Zenefits compete."
Currently, Utah is the only state in the U.S. that has banned Zenefits.
“We don't think it is fair to Utah businesses to have to pay for a service that is free in 49 other states,” Zenefits co-founder Parker Conrad said in a statement. “We don't think the Utah state government should be setting prices for its businesses, so we're going to fight this with every ounce of strength we have.”
Beehive Startups expressed concern that the ban hurts the state’s reputation for being a technology hub.
By forcing Zenefits to shut down or impose a surcharge, the state is claiming the availability of free online software is unfair competition, Beehive Startups said.
Conrad also noted Utah’s technology reputation.
“The irony here is that Utah proudly touts itself as a great place for tech businesses, and Governor (Gary) Herbert is working hard to attract tech companies to ‘Silicon Slopes,’” Conrad wrote on Zenefits. “Utah can't have it both ways — you can't say you're open to innovation and technology — but only when it doesn't disrupt existing businesses or tread on the toes of entrenched interest groups.”
Prior to receiving Kiser’s letter in November, Conrad announced plans to open offices in Arizona, which will create 1,300 jobs in the state.
Conrad told AZ Central the inquiries made by Utah nixed any chances of the company opening offices in the Beehive State.
