
Zenefits ordered to stop offering free insurance software in Washington state - prostoalex
https://techcrunch.com/2016/12/01/zenefits-ordered-to-stop-offering-free-insurance-software-in-washington-state/?ncid=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29
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koolba
From the article:

> “The inducement law in Washington is clear,” Commissioner Kreidler said in a
> statement accompanying the order. “Everyone has to play by the same rules.”

> As a result of the order, Zenefits has worked out a compromise with the
> State whereby it will offer its software on a paid basis, at a rate of $5
> per employee per month.

I don't get it. So the rule is that you have to charge your customers
something? Why can't businesses get free services off the fat of VC capital?
Who's being protected by this besides existing insurance companies that are
getting their lunches eaten?

Note that I'm not defending any of the other shenanigans that Zenefits has
done. I'm just curious what the rationale is for requiring them to charge
customers a fee. Anti-dumping laws?

~~~
Thriptic
The risk is that a well funded company gives away their product, drives all
their competitors out of business and creates a monopoly, then jacks their
prices up. It could be viewed as anti-competitive.

That being said, I also think this is overkill.

~~~
reacharavindh
Yes, this looks like a simple effort to safeguard against anticompetitive
behavior of a well funded company. I think there should be proper regulation
against this sort of freebies. Even more straight forward example would be
Uber vs all other ride-sharing companies. They started off offering steep
steep discounts to both drivers and riders (from their VC coffers) while
running at a loss, making it impossible for any less funded competitor to even
think of entering the business.

There should be some sort of regulation about starting off free and jacking up
prices once the competitors are driven out of business. Or if such already
exist, it must be enforced and made more stringent.

~~~
Eridrus
I don't think Uber's case is more obvious. Uber's business only works at
scale, therefore they need to get there and deep discounts to get to scale
make sense regardless of competitors. This is particularly clear in the case
of Uber Pool which only makes sense with lots of riders using it, which you
need to bootstrap somehow, or it will not be feasible for anyone.

~~~
reacharavindh
"Uber's business only works at scale, therefore they need to get there and
deep discounts to get to scale make sense regardless of competitors."

Isn't that almost universally true for everything? Is it an acceptable reason
to stifle open market competition? I mean think about any other industry. Say
a new airline wants to get into business. Is it okay for them to offer $1
tickets (while writing off taxes/airport fees as losses) until they gain
enough market share? What would that do to other competitors in that industry?

~~~
dismantlethesun
Not really. "Only works at [large] scale" means that you cannot be profitable
and be a small business.

As over 70% of business transactions in the US are done by small businesses,
then most businesses can profitably exist at a small scale.

When something is only profitable at large scale, typically what's done in the
western-style economic nations is to (a) make a public company like the US
Post Office (b) tightly regulate the market so the inevitable large actors has
to serve the public good as is done for insurance currently or (c) hand out
monopolies at the local level as is done for telecom companies.

------
wwalser
The top comment in this tread says: "Why can't businesses get free services
off the fat of VC capital?"

Perhaps an explanation of Zenefits' business model is in order. The
explanation of it's software being free is and has always been that they don't
make money from the software but from the brokerage fees from insurance which
is sold through the software.

Think of it like Expedia, they doesn't charge you for flight search and
booking software. They make money as a "broker" for the sell of flights.
Without any data, I can't nor could a government entity, say whether or not
Zenefits is "dumping" using VC money. Zenefits have had their missteps and
have paid for them. This case though feels like pure protectionism of existing
players.

Again, I'm saying that absent the data. Maybe, this seems unlikely, running
the business actually does take more money than could potentially be made from
brokerage fees. A reasonable measure, in my mind, could be a look at their
average(mean) customer lifetime value. All new customers are going to be
negative (cost of acquisition being fairly high for a sales driven company)
but over time it should recover unless the average customer churns quickly. VC
dollars _should_ reasonably be spent on increasing up front spend in order to
acquire customers more quickly. If Zenefits have increased that spending so
dramatically that the average customer isn't profitable then perhaps it should
count as dumping.

------
CGamesPlay
This is based on the regulation that brokers can't be better than one another
on the basis of price. You can't give "kickbacks" to your customer that make
you appear to be a better option. The health insurance companies get the same
premium regardless of broker (1), so this is about inter competition between
the brokers, not insurers.

(1) OK, well in the large group segment you could make an argument that a
sufficiently large broker could use that pressure to negotiate better rates
with the insurance companies, but I don't know if that's the tack being taken
here.

~~~
beambot
Why do we need the brokers at all?

~~~
CGamesPlay
Zenefits doesn't want to be an insurance company, they would much rather be a
broker.

But to actually answer your question, a broker is a tool for the consumer /
provider to facilitate sales. If there's a better replacement tool, we don't
need brokers. For example, travel agents used to be the best tool to find and
purchase flights, but they have been replaced by Kayak and competitors.

~~~
beambot
I know what brokers _ostensibly do_. I'm asking: Why do we need healthcare
insurance brokers in this day and age? If the answer is "we might not", then
entrenched middlemen shouldn't be propped up by outside lobbyists,
regulations, or "because, jobs."

In fact, you could probably make a real case that middlemen are directly
responsible for substantial markup on healthcare insurance costs!

~~~
Broken_Hippo
You could make that last case: However, I think a broker is probably the best
way to compare different insurance plans when buying from the market instead
of through your employer.

For example, take 3 insurance shoppers. One has asthma, the second diabetes,
and the third has MS. The three have vastly different needs for care and
coverage, and the key to matching up the needs is the broker.

The need for brokers could theoretically be eliminated, but that would take
some government software and regulation and whatnot to get done.

------
Esdraelon
Three capitalist pigs were sitting in a jail cell in glorious Soviet Russia.
They were discussing their plight, and how they might be better re-educated
for the benefit of the proletariat, when they got onto the topic of their
incarceration.

The first says, "I sold my goods for more than my competitors, and was found
guilty of price gouging "

The second says, "Well, I sold mine for less, and was accused of dumping."

To which the last responded, "And I sold mine for the same as everyone else,
and I sit here for collusion!"

------
wilde
This law appears to be widespread. [http://compliance.aeproduction.info/wp-
content/uploads/2015/...](http://compliance.aeproduction.info/wp-
content/uploads/2015/07/StateLaws-on-GiftingRebating-and-Inducements2.pdf)

------
Animats
_" As part of its free software offer, Zenefits provided certain features with
a paid commission. To access these premium features, the company required the
client to designate Zenefits as its broker of record, then collected the
commissions associated with the insurance product sold."_[1]

Free software is fine with Washington state. Attaching an illegal revenue
stream to "free" isn't.

[1] [https://www.insurance.wa.gov/about-
oic/newsroom/news/2016/12...](https://www.insurance.wa.gov/about-
oic/newsroom/news/2016/12-01-2016.html)

------
chime
Zenefits should show a counter on their site to each logged in user: "Get the
state law changed and we will refund you the $24,545 you paid us so far." Let
a few hundred thousand businesses see that amount in their dashboard and see
if it affects the support of the law.

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jhspaybar
As a licensed insurance agent and tech person working in insurance, this sort
of law is common and is a big part of the ethics portion of the licensing
exam. I honestly don't think it applies here, but I could see how it could be
justified.

~~~
stale2002
Honest question. Why is charging consumers higher prices the "ethical" thing
to do? Giving "kickbacks" is just another word for "charging customers less
money".

Is the issuance industry so messed up that choosing to not screw over
consumers is considered "unethical".

~~~
svachalek
Insurance itself isn't a consumer-friendly product without regulation. It's
too easy to make a lot of sales and just disappear when the going gets tough.
One bad player can run all the good ones out of business by out-"competing"
them. I wouldn't be surprised if there are similar games to play in the
insurance broker business but I'm not sure how it's done.

~~~
icebraining
Wouldn't it make more sense to impose a capital requirement, like on banks?
E:g. if you're insuring for $X in total value, you need to at least keep $Y in
a fund.

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Stryder
Zenefits had their fuck-ups and they've been paying their dues and righting
their wrongs.

This feels a bit much.

Kicking people when they're down is just bad karma.

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BuuQu9hu
I wonder if this could affect open source in some way.

