Private Company Enforcement: Bay Area Tech Company Designs Tech Solution to Its Compliance Problems

7/22/2016 Articles

The brightest minds in Silicon Valley work 24/7 to disrupt existing systems and industries. No one can argue that Uber and Lyft haven’t fundamentally altered transportation, that AirBnB hasn’t changed the way we travel, or that Netflix hasn’t rendered brick and mortar video rental stores obsolete. Can those same minds harness the innovative energy of the region to make it easier for regulated industries to comply with state and federal laws? At least one Silicon Valley company thinks so, and is exploring new ways to marry its technological expertise with its compliance obligations.

Zenefits, a San Francisco company valued at $4.5 billion, aimed to disrupt the health insurance and Human Resources market by providing small businesses with, among other things, health care brokerage services. The company recently found itself in hot water after BuzzFeed News revealed that the company failed to ensure that those of its employees acting as health insurance brokers were licensed to do so. Because Zenefits operated in all 50 states, it routinely had brokers assigned to projects for clients in states in which those brokers weren’t licensed to sell health insurance. Further reporting revealed that the company even created a special software program that let employees in California skip the mandatory 52 hour training sessions required for state certification. The ensuing scandal led to the resignation of the company’s CEO in February of this year and a leadership shake-up across the company.

The new Zenefits team faced their compliance problems head on. Redemption began with a comprehensive internal investigation, the results of which were reported to all 50 states, but perhaps the most lasting impact of this compliance failure will be an embrace of technology to provide a long-term solution to regulatory headaches.

In late June, Zenefits announced that it had developed an app that can verify each broker’s licensure status and will direct accounts to only those brokers able to sell products in the relevant jurisdiction. The app not only assigns brokers to only those projects they can legally work on, but also, by verifying licensing statuses using the National Insurance Producer Registry database, confirms that a broker can work at all.

Zenefits’ app is an innovative solution to a widespread and complicated compliance problem. If technologies like this one prove successful, and as Silicon Valley aims to “disrupt” more and more regulated industries, this kind of innovation will play a larger and larger role in bolstering compliance with existing regimes.