Zenefits’ ability to conduct business in Utah has captured headlines for a year now. After back-and-forth petitioning, lawmakers in Utah yesterday reversed its ban on the company’s business model. Below is our examination of these recent developments. In the meantime, visit www.zenefits.com/licenses for a detailed description of the Zenefits platform and licensing information.
The Latest
Yesterday, the Governor of Utah signed into law what is being touted as a special Zenefits exception to the prevailing Utah insurance anti-rebating regime. Specifically, the bill – Utah H.B. 141 – amends Utah’s rules to allow an insurance agent, broker or consultant to provide goods or services free of charge or for less than fair market value provided that four things are true:
- The goods or services are available on the same terms to anyone;
- Receipt of the goods/services is not contingent on the sale, renewal, termination or price quotation of or for an insurance contract;
- There is no subsequent retroactive charge based on the occurrence or non-occurrence of an event subsequent to receipt of the goods or services; and
- The goods/services recipient receives an oral or written disclosure before an insurance solicitation is made indicating that receipt of the free/discounted goods/services is not contingent on the purchase, continuation, or termination of an insurance product or receiving a quote for an insurance product.
This expands the statutory list of insurance-related services that may be provided without running afoul of the Utah anti-rebating rules to free/discounted goods and services that are offered to the public. Any agent or broker doing business in Utah can take advantage of this if they so choose.
What are the broader impacts?
There are at least two: 1.) Impact in other states that are grappling with how the Zenefits model comports with their anti-rebating regime and, 2.) the broader long-term impact on how business is done in our sector.
Impact in other States
The Utah development can be read through two lenses. On the one hand, it can be interpreted as a march toward the inevitable allowance of the model but one that should be leveraged for broader liberalization of the anti-rebating regimes in the commercial insurance sector. The Council champions innovation and allowing the market to support the development of multiple models and solutions. That is good for the consumer and it should be welcomed.
On the other hand, you can read the decision to fix this issue through legislation as a concession – at least by the Utah public policymakers – that the current anti-rebating regimes (which essentially all have the same core prohibitions on offering “inducements or any other thing of value” for the purchase of an insurance contract that is not stipulated in the insurance contract) do not allow the offering of free/discounted goods and services by insurance agents/brokers/consultants, even if the offer is made to the general public with no strings attached. The only way to authorize those activities is therefore to change the anti-rebating statutes to specifically allow them.
Regulators in most of the states in which Zenefits currently operates have – to date – taken a non-enforcement approach to the rebating issue. This is consistent with a long history of non-enforcement of the anti-rebating rules in many jurisdictions. And the biggest market in which Zenefits has been building its customer base – California – repealed its anti-rebating rules by referendum years ago removing this obstacle entirely there. Unfortunately, as we also have seen over time, a practice of regulatory non-enforcement can change abruptly and often without warning.
Business Impact
We would argue that the Zenefits model is not revolutionary but is another in a series of efforts and developments going back over two decades that have commoditized (or attempted to commoditize) segments of our markets. For customers purchasing products for which they do not think that they need advice or guidance either on their purchase decision or on utilizing their coverage if they have a potential claim, there are more and more non-producer assisted options in the marketplace with Zenefits being just the latest.
The cornerstone of the value proposition Council members offer, though, is that advice and guidance. You want and need to supplement that with products, services and technology that make your firms financially robust but – for us – the advice and guidance has become the lead draw. Many of your firms distinguish yourselves based on the expertise you have or the advisory model you offer and you compete on that.
We do not view Zenefits as disrupting that evolution but enhancing it for us; forcing us to identify our competitive advantages and to compete through those for the clients who want and need the expertise and wisdom you have to offer. We do not think that can be displaced with an algorithm. Do you?
Please contact Ken Crerar at ken.a.crerar@ciab.com with any questions.