The Utah Insurance Department’s ruling is unsupported by the facts and Utah law.
Zenefits, the San Francisco-based online HR platform company, has officially responded to the Utah Insurance Department’s recent letter banning the company from the Beehive State.
Written by Zenefits’ attorney, Thomas J. Welsh, the letter begins by referring to a notice the company received on November 20th that stated the company’s business model is illegal in Utah because it induces the purchase of insurance.
“Not only is this conclusion unsupported by the facts or law, it sets Utah apart from every other state in the Union, to the detriment of its business environment and its consumers,” writes Welsh. “It sends the clear message that Utah insurance regulators are hostile to innovation, and that insurers and brokers in Utah run the risk of prosecution if they deviate from regulators’ subjective opinions of how they should operate.”
When Beehive Startups first wrote about Zenefits getting kicked out of Utah, we noted that the “Utah Insurance Department’s decision could potentially have devastating implications on Utah’s future as a technology hub. By forcing Zenefits to shutdown or add an extra surcharge to all of its Utah customers, the state is claiming the availability of free online software — even if generally available to the public — is unfair competition.”
Welsh seemed to reach a similar conclusion in the company’s official response to the Utah Insurance Department:
The Department’s determination will also have ripple effects beyond the insurance marketplace, pegging the State as inhospitable to companies that use technology and innovation to reach new markets or disrupt existing ones. When regulators prefer to interpret statutes in a way that assumes the illegality of new business models, particularly when a fair reading of the statute requires the contrary result, innovative companies will invariably conclude that doing business in Utah isn’t worth having to fight the preference for the status quo. The Department’s decision is the equivalent of planting a sign at the state line that says, “Innovation Not Welcome.”
Utah Gov. Gary Herbert and Lt. Gov. Spencer Cox initially responded to their Insurance Department’s decision by suggesting it was up to the Utah State Legislature to change the law, and that Insurance Commissioner Todd Kiser was just enforcing existing law.
In a blog post published this morning on the company’s website, Zenefits CEO Parker Conrad disagreed with that conclusion.
“As we note in our response, the Insurance Department’s ruling is ‘unsupported by the facts and Utah law,’ and it ‘sends clear message that Utah insurance regulators are hostile to innovation,’” wrote Conrad. “The ruling ignores how Zenefits’ business actually works, and misinterprets Utah law — including the intent of the authors of the specific Utah law allegedly violated. We believe that by shutting down Zenefits to protect incumbent brokers, the Insurance department is also violating federal competition laws — and is unconstitutionally interfering with interstate commerce since, in the words of our memo, it ‘has no rational connection to the state’s interest in protecting consumers.’”
Zenefits’ entire letter to the Utah Insurance Department can be found at the bottom of this post. We’ll continue to follow this story as it develops.
Update: Marty Carpenter, spokesman for Gov. Herbert, issued the following statement regarding our story on the recent Zenefits’ response:
“The governor has said he is willing to work with all stakeholders to ensure Utah has the right policy in place to embrace innovative ideas while protecting consumers. As an administration, we understand Zenefits’ frustration and we are actively working toward a resolution in the upcoming legislative session. However, changing statute is something we strive to do with complete information. Ultimately, if we determine the law needs to be changed to benefit the people of our state, we are open to changing the law.”