When Zenefits launched, it captured attention across the benefits world with promises of sleek technology, faster enrollment, and a reimagined broker model. For a time, it seemed like a revolution was underway.
But as the story unfolded, cracks appeared. Compliance oversights, a narrow focus on technology at the expense of fiduciary responsibility, and misaligned incentives left many employers questioning the promises of the insurtech wave.
Valhalla is pleased to support clients with curated and licensed technology solutions, as well as proprietary programs and solutions that are “home grown.” We have embraced the best of what technology offers — efficiency, data insights, automation — but paired it with what some insurtech couldn’t provide in the past: independent fiduciary thinking, compliance expertise, and client-first service.
On December 27, 2021, Jens Thorsen wrote a blogpost about reflections on, ‘Zenefits | some thoughts on an insurtech legacy.’ This was immediately following the press release announcing the sale of Zenefits to TriNet Group Inc. You can read that original blogpost here!
A summary:
Zenefits was founded by Parker Conrad in 2012 after a “falling out” with a business partner at his previous venture, SigFig. This New York Times article from 2014 does a nice job summarizing the value proposition at Zenefits.
His vision was simple and elegant: What small businesses needed was a single online tool to track all employee records. This software would connect to every benefits provider, so that when your boss wanted to give you a raise, she would type your new salary into the software, and it would handle the changes in all your information with every other service provider online. Mr. Conrad sought to turn a company’s human resources busywork into the sort of one-step, paperless operation we’ve come to expect from most other parts of our app-driven, on-demand world.
Zenefits’ Leader Is Rattling an Industry, So Why Is He Stressed Out? by Farhad Manjoo on 9/20/2014
In exchange for providing this service to employers, Zenefits would seek to become the “broker-of-record” for its clients’ employee benefits, substituting subscription revenue for insurance commissions as its primary source of revenue. In other words, Zenefits solved an HR admin issue as a value proposition and accepted insurance commissions as its compensation. A client was quoted in the above mentioned NYT article as saying, “The traditional brokers came here and we had a face-to-face meeting, and they were knowledgeable and very nice. But we’re getting so many extra bonuses with Zenefits for the exact same price, we had to choose them.”
This led to a tremendous amount of venture capital funding, interesting and aggressive marketing tactics, and the eventual ouster of its founder as a result of compliance failures (and other stories of cultural issues.)
This article shares reporting on the connection between Lars Dalgaard and David Sacks. Sacks came in as COO at first.
Zenefits was everything Silicon Valley loved wrapped up in one company. It had a visionary founder. It tackled a stodgy industry ripe for disruption. The recurring commissions gave it a steady stream of revenue from the start. And Zenefits was the first in the health insurance software space, the Uber to its future competitors’ Lyft. The potential for greatness is what allowed Zenefits to expand from 15 employees to 1,600 in three years; raise $580 million in three fundraising rounds; and become one of Andreessen Horowitz’s biggest investments. Last year it was valued at $4.5 billion, which made it, in Valley parlance, a “unicorn” several times over.
“You’re looking for disruptive companies,” Conrad said in that same TechCrunch Disrupt speech. “We are going to mess stuff up.”
He was right, although not in the way he meant.
Zenefits Was the Perfect Startup. Then It Self-Disrupted by Claire Suddath and Eric Newcomer, Bloomberg, on 5/9/2016
What happened? Well, it was a number of things. The big one, though, was compliance. The Bloomberg article from 2016 shares an account where, “[i]n California, they found, some of the sales team used Conrad’s macro to systematically cheat on the state’s training course, which included a section on ethics. “As far as a company doing what Zenefits has done, I don’t know that we have seen this before,” says Nancy Kincaid, press secretary for the California Department of Insurance, which has also opened an investigation. In March, Massachusetts’ division of insurance opened a third.”
To this point about about compliance, this article from TechCrunch reported a bit about David Sacks’ response to the matter. I think his quote here is key: “I believe that Zenefits has a great future ahead, but only if we do the right things. We sell insurance in a highly regulated industry… In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die. The fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.” You can also read the full memo here on VentureBeat.
Burned cash, Competitive response
Well, according to this report by Forbes, Andreesen Horowitz and Founders Fund wrote their investments in Zenefits, who reportedly raised USD $618 million+, to zero. Large insurance technology firms grew as brokers considered “buy-build-or-partner” decisions; Other firms, like ours, decided to pursue strategies that included partnering with groups like Employee Navigator, Plan Source, and bSwift, while also building proprietary solutions, such as Insurance Skout.
In a story that is still unfolding, Parker Conrad’s new venture, Rippling, is reported by Amy Feldman of Forbes to be “worth $300 million and growing fast. Can Parker Conrad find redemption?” I think there is a huge market and need for innovation in SMB for insurance services, employee benefits, as well as HR solutions (including compliance support!) I continue to enjoy seeing from which firms (and people) innovations arise! And, I think it would be foolish to bet against Mr. Conrad. He was reported as saying, “For me, personally, one of the reasons I am [building this new firm] is that if I can build Rippling into a company that becomes a $100 million success that will force a reassessment of what happened at Zenefits… It was the only way for me to, in a way, talk about what happened, and try to tell my side of the story.”
Takeaways in 2025
The lessons remain highly relevant for employers today:
- Technology is not a substitute for fiduciary advice. Platforms can streamline processes, but employers still need experienced advisors to interpret regulations, guide strategy, and manage risk.
- Compliance is not optional. Zenefits’ struggles showed what happens when speed overtakes oversight. Employers can’t afford to jeopardize plans through shortcuts.
- Transparency matters. Many insurtech models obscured how brokers were compensated, leaving clients in the dark. Employers deserve clear, conflict-free advice.
- Human expertise is irreplaceable. Benefit strategies must balance financial, clinical, and cultural considerations. That requires judgment, not just software.
The future of benefits consulting belongs to firms that marry technology with trust. Employers don’t just need faster enrollment platforms. They need advisors who are accountable, transparent, and relentlessly focused on outcomes for employees and plan sponsors.
P.S. Ask Valhalla Business Advisors about our progress with our own investments into proprietary technology solutions via ComplyLense, FincLense, and ValhallaOS!