From the dusty file rooms of Utah insurance brokerages we hear indignant squeals of discomfort. A new competitor called Zenefits rode into town offering customers a much better deal than has been seen in decades. In response, the Utah brokers tied on their guns and did what they have been taught – hunkered down behind heavyweight protection from the Utah Department of Insurance.

Zenefits is an online insurance brokerage that serves small businesses in all 50 states. Customers have rapidly welcomed it because of the helpful human resource software application that it supplies without charge to its customers. It provides hiring and benefits management software, health insurance, payroll, and retirement fund management. For small businesses, Zenefits saves hundreds of hours of administrivia by automatically filling in the tedious forms required for government compliance. For its software and coordination, Zenefits charges nothing. For the insurance products that a customer buys, it charges a customary commission.

It’s that “giving a customer something of value without charge” that really irks Utah’s Department of Insurance. The Mission of the Utah Insurance Department is to “foster a healthy insurance market by promoting fair and reasonable practices that ensure available, affordable and reliable insurance products and services.”

The orderliness implied in “healthy market” is nice, but the Department omits the most important aspect of the mission, the “for whom.” To date, the Department’s version of “fair and reasonable practices” is measured in aggressive protection for Utah’s incumbent insurance brokers. That much was clear when the Department charged Zenefits with violating the state’s rebates and inducement law by giving away its software for free. Furthermore, the Department demands that Zenefits pay a hefty fine and cease being so helpful to customers.

The Department regards consumers as just another class of stakeholders in need of education “at a reasonable cost.” Consumers deserve far better than that. Consumer welfare should be the dominant focus in the Department’s analyses and regulations, especially in a naturally competitive marketplace like multi-carrier insurance brokerages. The consumer welfare perspective likely explains why in the handful of other states where state insurance commissions have monitored Zenefits, they found nothing troubling to report on.

Competitive success should require more than membership in a good ‘ole boys’ club of back-slappers. Competitive brokers should be ready to counter aggressive innovations from other brokers that invest in superior service for consumers. The Department of Insurance should be there to make sure consumers are well served, not to insulate incumbent brokers from competition.

Utah’s incumbent protection bias is not unique. There are other instances of regulatory capture that work against consumer welfare. For example, Tesla Motors is fighting protectionist state agencies that prevent them from selling new cars in some states (e.g. Michigan and New Jersey). Tesla’s sin is that it wants to sell to consumers honestly and directly, without “help” from a local dealership. Some may disagree, but most consumers find car buying at a local dealer intensely unpleasant. We resent the meaningless sticker prices and disreputable sales tactics. Similar protectionism is seen in state- and city-level efforts to ban Airbnb and Uber.

Utah can do the right thing for insurance consumers and legislation has just been introduced to address this. Doing the right thing means a change in attitude and focus. The Department of Insurance will need to place consumers at the center of its analysis and regulations – not the entrenched incumbents. That change will yield quick benefits for Utah’s consumers and small businesses by sharpening the competitive pressures in the insurance industry’s supply chain.

Alan Daley writes for The American Consumer Institute Center for Citizen Research. For more information, visit