Utah v. Zenefits: The Case for Smart Disruption


“Disruption” is a word that’s thrown around often and without consequence, but when you take a second to think about what it really means—upending the status quo—you can understand why it’s so important that we encourage responsible disruption. Because, quite often, doing away with the status quo also means progress.

The latest battle that has our attention is in Utah: there, Zenefits is under fire from the state Insurance Department for offering free software from which people can obtain insurance and other HR-related services. The state claims that offering the free software violates state laws regulating insurance brokers. Yet, we find it hard to come up with any rationale for this decision, other than the fact that Zenefits’ product makes it harder for long-time insurance brokers to compete. (For what it’s worth, Utah’s Lt. Governor publicly stated last week that Zenefits has not been banned from the state, but it’s fair to say Utah is not a hospitable place for the growing startup right now.)

Here’s the thing about Zenefits: It provides an incredibly useful service. (We at Engine should know, since we use if for our own team.) Through an easy-to-use UI and streamlined process, Zenefits makes it significantly easier for startups and small businesses to navigate the HR and insurance process, which—as anyone who has tried to do that before can tell you—is a beast. This is a good thing for at least two very important reasons: 1) it allows small businesses to more easily give their employees access to not just health insurance, but other HR benefits (like FSAs, commuter benefits, etc.); and 2) it frees up valuable resources, primarily time, so that a business can get back to the hard work of building a company.

As we see it, Zenefits and other companies simplifying the HR process are good for just about everyone, except for those who benefit from a messy and expensive system that requires incumbents with entrenched market power to navigate. Which is why we’re so concerned about what’s going on in Utah.

This is not to say that the insurance industry should not be regulated, or that Zenefits should be able to compete without following smart regulations that exist to protect consumers. It is to say, however, that relying on antiquated regulation to stymie innovation—what the Utah Insurance Department seems to be up to here—sets dangerous precedent that will only harm our startup ecosystem and recovering economy.