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Mass. insurance regulator investigates benefits software firm

The Massachusetts Division of Insurance has launched an investigation into the human resources software company and benefits broker Zenefits Inc., joining regulators across the country that are raising concerns about whether the company’s employees are properly licensed and trained to sell group health insurance.

Chris Goetcheus, a spokesman for the insurance division, confirmed the investigation is ongoing, but declined to comment on what initiated the probe. Regulators in California and Washington have launched similar investigations over concerns that businesses and consumers may be buying complex insurance products from untrained brokers who don’t understand what they are selling.

Zenefits is a three-year-old San Francisco company that provides software to help businesses automate payroll and benefits administration. It provides a free technology package for smaller companies to more easily manage their payroll and benefits for employees. When Zenefits’ clients sign up for health insurance and benefits plans using the system, Zenefits earns commissions, making it a broker between companies and health insurers, such as Anthem Inc. of Indianapolis.

Zenefits has grown rapidly, raising $580 million from investors and picking up 10,000 corporate customers nationwide, including more than 200 in Massachusetts.


But just as other tech companies are disrupting old-line industries, such as ride-hailing company Uber Technologies Inc. and home-sharing firm Airbnb Inc., have encountered regulatory hurdles in the taxi and hotel sectors, Zenefits has run into its share of problems.

The company’s founder, Parker Conrad, resigned last month amid concerns over compliance with state licensing rules and reports about lax culture that allowed drinking at the office and required warnings that workers should refrain from having sex in the office stairwells.

David Sacks, the new chief executive officer of Zenefits, has banned alcohol at work and hired an outside company to investigate whether employees skirted licensing requirements. Zenefits has reported the issue to California and made other states aware that some of its brokers may not have been properly licensed to sell insurance.


“We have been fully cooperating with regulators,” said Kenneth Baer, a Zenefits spokesman. “We accept full responsibility for what may have transpired in the past, and we also are looking forward to a new Zenefits that takes its regulatory obligations seriously.”

Zenefits’ software services have appealed to small and mid-sized companies that don’t have the money to staff an extensive human resources operation. These companies are also looking for brokers to help them pick the best and most affordable health and benefit plans, said Patty Houpt, the executive director of Waltham-based New England Employee Benefits Council.

It’s those separate broker services that have gotten the company into trouble.

Properly trained and licensed insurance brokers can be crucial to smaller companies, helping them find the best prices, and providing them with guidance on benefits issues, Houpt said.

“The health insurance marketplace is getting more complex and detailed,” Houpt said. “This is a highly regulated area and it should be. This is important stuff people are doing.”

Erika McGrath, vice president of human resources at The Channel Co., a 150-employee technology consulting business in Westborough, said news that some Zenefits employees weren’t licensed was concerning. Her company’s broker, however, had the right credentials in Massachusetts.

McGrath said she has been satisfied with Zenefits so far and the software and services have saved The Channel Co. about $150,000 in the first year by reducing staff and eliminating other payroll systems.


“They are disrupting an industry that has been stuck in paper for years,” McGrath said. “It’s not something I would want to lose.”

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.