The California Department of Insurance announced that the enforcement action taken against Zenefits for multiple insurance broker license violations has resulted in a $7 million penalty.

Zenefits was charged with allowing unlicensed employees to transact insurance and circumventing insurance agent education requirements. This is the largest penalty assessed by any commissioner against Zenefits and one of the largest penalties for licensing violations ever assessed in the department’s history.

A 2013 start-up, Zenefits is a San Francisco based company whose business model was to provide online HR services to businesses and then encourage those same businesses to use Zenefits as an insurance broker.

The California Department of Insurance launched an investigation in 2015, after receiving complaints that Zenefits employees were transacting insurance without a license. Shortly after the investigation into Zenefits’ business practices and compliance began, the company announced publicly that they were not complying with insurance laws and regulations, which was followed by the resignation of Zenefits’ CEO, Parker Conrad.

The California Department of Insurance ultimately claimed in its Order to Show Cause that “From January 2014, through November 2015, Respondent employed individuals within and outside of California who solicited, negotiated and sold insurance policies to customers located in California. According to Respondent’s June 1, 2016 report, its employees sold 8,118 insurance policies to California consumers during the aforementioned time period. Of this total, at least 1,994 insurance policies were sold by employees who lacked the proper license required to transact insurance pursuant to CIC section 1631.”

The settlement agreement obtained by the insurance commissioner includes a $3 million penalty for licensing violations, including allowing unlicensed employees to transact insurance, a $4 million penalty for subverting the pre-licensing education and study-hour requirements for agent and broker licensing, and a $160,000 payment to reimburse the Department of Insurance for investigation and examination expenses.

In recognition of the self-reporting and remedial actions already implemented by the company, including the replacement of the former CEO, retraining of all licensed producers, and implementation of an automated process to verify that only licensed individuals solicit and sell insurance products, the settlement provides that half of the total $7 million in monetary penalties are suspended.

The suspended portion of the monetary penalty will be reinstated if Zenefits fails to confirm continued compliance with licensing and regulatory mandates based on an examination of the company’s business practices to be conducted in 2018.

Zenefits has been investigated and fined in other states for similar compliance issues, including Texas, Massachusetts, Tennessee and Washington. In July Zenefits reached a settlement with the Tennessee Department of Insurance and Commerce, agreeing to pay a fine of $62,500. And the Texas insurance regulators have fined Zenefits, $550,000 for its past use of unlicensed health insurance brokers.