Late last year, we wrote about the ridiculous situation in which the state of Utah effectively banned Zenefits, the innovative HR software service provider that tons of companies now use. As we noted, Zenefits came up with a creative way to build a real business by giving away its (really useful) HR software for free: coupling it with an insurance brokering business. You get to use its software for free, and Zenefits also makes it easy for businesses to get insurance and takes a cut of those deals. Zenefits started out by first just building the software, but then realized that it could tack on this business model after it found that most insurance brokers collect huge fees without really doing anything all that useful. So here, Zenefits could provide a more useful service, offer it to companies for free, and have a really successful business model. A win for everyone. Well, except traditional insurance brokers who found it more difficult to compete.
And thus, the Utah Insurance Department, run by former insurance broker Todd Kiser, declared that Zenefits broke a bunch of rules in Utah by daring to give out its software for free. Kiser determined that this violated rules against “inducements” or “rebates.”