STOCK MARKET WATCH -- Monday, 15 December 2014

[Demeter]

27. Republican Crony Capitalism On Display Out West

http://www.forbes.com/sites/patrickgleason/2014/12/15/republican-crony-capitalism-run-amok-out-west/

Businesses and industries too often seek to use the power of the state to eliminate or impair their competitors. Such protectionist proposals end up hurting consumers because they result in less choice, reduced convenience, and higher prices. A new protectionist effort is currently underway in Utah, a politically red state with a Republican governor and a state legislature completely controlled by the GOP. The target of this latest ill-advised push is Zenefits, a San Francisco-based startup company launched in 2013. As TechCrunch describes it, Zenefits helps businesses by providing “a cloud-based dashboard to HR departments designed to help small businesses manage hiring, termination and all the benefits and payroll details necessary in-between those events.” Zenefits also connects companies with health insurance providers.

This cutting edge startup has experienced great success early on in large part because, as the aforementioned TechCrunch article points out, Zenefits “makes it just that much easier to manage the insurance piece once a business has authorized the company as its broker. And, as a result, more traditional insurance brokers are finding it difficult to compete with the company’s business model.” Utah’s traditional insurance brokerage community is none too pleased about having to compete with Zenefits. On November 20, Utah Insurance Commissioner Todd Kiser sent a letter to Zenefits, informing the company that it is violating Utah inducement and rebating laws because it offers its software for free. Kiser said the company should be assessed $5,000 for each violation and twice the profit generated per violation. Because of this, Zenefits would currently be on the hook for at $97,000 penalty.

Kiser told Zenefits that it could come into compliance with state law by raising prices and ceasing to advertise. Zenefits does not charge businesses for their software, but they generate a profit from commission paid by the insurance providers with which they connect their clients. Zenefits understandably does not wish to go along with Kiser’s orders. It’s worth noting that Commissioner Kiser was an insurance broker for 25 years prior to being elected to the state legislature. Kiser’s dictate, at the expense of small businesses, will protect brick-and-mortar brokerages like the one he used to run. He even said, in his own words, “the ease of using Zenefits” is part of the reason why he went after them.

So in Utah, it’s apparently a bad thing for a new company to make it easier for employers to operate their business. That’s an odd approach and one that won’t help the state market itself to companies looking to move to and create jobs in Utah. It’s also at odds with Utah Gov. Gary Herbert’s stated commitment to foster and support tech innovation in the state. Other states have smartly welcomed Zenefits.