Transgender Implications for the Insurance Industry

by The LexisNexis Practical Guidance Insurance Team

This practice note is about how transgender issues may impact virtually all aspects of insurance. It addresses how the insurance industry, its structures, and those involved in it must adapt with the changes that transgender awareness has brought about to remain compliant with government regulation and responsive to new consumer demands. It also discusses adjustments to business practices and product design that insurers, individuals, and related institutions may consider to ensure their ability to remain in business.

This practice note will briefly overview the insurance industry’s underlying structural, organizational, and mechanical elements and how each is now, and is anticipated to be, even more greatly affected by transgender awareness. The discussion will address each aspect of the insurance industry, what it does, who and what is involved in each, and their interaction with one another and third parties, including the government.

For a full listing of transgender-related content, see Workplace Diversity, LGBTQ, and Racial and Social Justice Resource Kit.

For additional guidance about transgender impacts on insurance, see EPLI Coverage Implications in Gender Identity Claims, Mandatory Provisions in Health Insurance Policies State Law Survey, Prohibited Provisions in Health Insurance Policies State Law Survey, and Domestic Partnership/Same-Sex Marriage/Civil Union State Law Survey.

Overview

In recent decades, societal, legal, and business considerations of transgender issues and gender identity have increasingly become subjects of discussion, controversy, and action. There has been an explosion of demand to recognize and accommodate transgender rights and equality in life and the law. This has a variety of potential implications for the insurance industry.

The term “transgender” is usually considered to be an umbrella term for people whose gender identity or gender expression differs from the sex to which they were born. Identifying as transgender doesn’t necessitate identification as a specific sexual orientation, and individuals self-identify as straight, gay, lesbian, bisexual, or otherwise. Transgender people may choose to transition to live more fully in their true gender. This may include, but is not limited to, hormone therapy or gender affirming surgeries (medical transition), changing legal name and sex on government identity documents (legal transition), and changing name and pronouns (social transition). Transgender people may choose to undergo some, all, or none of these processes. Gender dysphoria may be understood as clinically significant distress caused when a person’s assigned birth gender is not the same as the one with which they identify. LGBTQ+ is an acronym for lesbian, gay, bisexual, transgender, and queer, with a + sign to recognize the limitlessness of sexual orientations and gender identities. See GLAAD Media Reference Guide, 11th Ed..

Categories Applicable to the Business of Insurance

Regardless of the kind of insurance or insurer involved and whether a practitioner represents the insurance entity itself, an officer, board member, or other operative or employee of the company, the business of insurance can be divided into nine broad categories that apply to most insurers. Further, each of these categories has a correlative transgender-related analysis pertinent to evaluating potential impacts on an insurance client. Each category is now and will increasingly be affected by transgender issues and concerns, and the insurance industry will need to be able to respond. These categories are:

• Insurer Formation
• Insurer Licensing and Authorization
• Regulatory Authority
• Insurer Operations
• Insurance Products
• Claims Practices and Procedures
• Consumer Protection
• Solvency and Rates –and–
• Insurance Intermediaries

There are also numerous potential categories of claimants and possible causes of action against insurers, insurance operatives, and their policyholders that can fall within the transgender penumbra. Recognize that many of each are new, at least because they rely on a transgender framework of claims being substituted for more traditional ones. Therefore, claims against insurers may range from how directors of an insurer are selected, who they are, where on the LGBTQ+ spectrum they place themselves, and how that placement aligns with shareholder (if a stock insurer) or policyholder (if a mutual insurer) sentiment. The grounds can extend to employment discrimination made by existing employees or job applicants, to how insurance policies are designed and interpreted, claims adjusted, benefits paid, and how rates are established. This is not an exhaustive list, which shows just how broad the transgender influence may, and probably will be, in the future.

Insurer Formation

As the term suggests, insurer formation involves the creation of an insurance entity. Factors involved in the process include deciding whether the entity will be a stock company, a mutual insurer, or another type of risk-bearing entity, such as a health maintenance organization. Entities that do not offer insurance to the public, such as captive insurers, are excluded from this discussion.

Initially, insurer formation involves filing with the Secretary of State or any other government entity in charge of formalizing the creation of business entities, documents, and paying the required fees to form the entity. State law provides what those documents are. When that is accomplished and the entity is created, written confirmation of formation, fingerprint cards, and other required material and fees are filed with the insurance regulator. In many or most states, filings can be made electronically but because correct and complete filings are needed, state procedures and processes must be confirmed. The documentation filed with the insurance regulator may differ slightly based on the nature of the insuring entity to be formed. An example is that articles of incorporation must be filed to create a stock insurer, whereas a copy of the entity’s bylaws must be filed to form a mutual insurer. See Fla. Stat. § 624.413.

Insurance regulators have traditionally been concerned with many factors relating to creating new insurers, including the identity, background, and experience of the people seeking to form it. There can be transgender implications in the formation process as a result. For example, an individual involved may not identify with their birth gender and may refer to themselves as a gender different from it. Also, legal processes may have occurred to change the person’s legal identity, such as name or gender designation on birth and other government documents. Similarly, depending on the size and place where the insurer is formed, transgender factors may or may not impact whether the company runs afoul of NASDAQ’s Board Diversity Rule or similar rules of any state.

Insurer Licensing and Authorization

This element of insurance involves the process by which an insurance entity, lawfully formed, becomes licensed to transact insurance business in a jurisdiction. Depending upon the jurisdiction, the term “licensed” or “authorized” is used, but they have fundamentally the same meaning—a legal imprimatur to transact insurance business in the jurisdiction. Each jurisdiction has a body of applicable law, but much of the process to gain the status is essentially similar. States are concerned, among other things, with the background and experience (particularly insurance-related experience) of the principals of the proposed insurer, its plan of operation, and its finances. State law dictates issues of capitalization. From an LGBTQ+ perspective, the United States Supreme Court has held that Title VII of the Civil Rights Act of 1964 prohibits discrimination based on sexual orientation or transgender status. See Bostock v. Clayton County, 140 S. Ct. 1731 (June 15, 2020). Accordingly, absent any other disqualification of an entity from becoming a licensed or authorized insurer in a jurisdiction, the mere involvement of a transgender individual should be irrelevant.

Insurer Operations

Insurer operations generically involve all issues and activities related to managing an insurer’s business. Of overriding importance is the corporate governance system of the company. Corporate governance covers the insurer’s corporate structure, its officers and board, its business areas, and extends to its internal values and ethics. Internal values and ethics may be intangible but are discernible by how the company conducts its business and treats competitors, the public, and policyholders. The end result of corporate governance is to facilitate effective and prudent management that leads to the company’s success.

As part of the insurer operations function, insurers must comply with the requirements of the National Association of Insurance Commissioner’s (NAIC’s) Corporate Governance Annual Disclosure Model Act (CGAD) and correlating regulations. They are intended to help insurance regulators understand each insurer’s corporate governance framework by obtaining its policies and practices from the insurer through an annual filing. As LGBTQ+ and transgender factors increasingly become the norm for all organizations, insurance regulators may monitor how insurers have incorporated them into their operations and abide by them.

To compare state laws on CGAD, see the Corporate Governance Annual Disclosure topic in the Insurance State Law Comparison Tool.

Another big issue for the operation of all insurers is ORSA—Own Risk and Solvency Assessment. An ORSA requires all medium to large-sized insurers in the U.S., and their groups, to issue their own assessments of the sufficiency of its risk management and current and future solvency conditions. The evaluations are conducted, and results are measured under normal and severe financial stress situations. The scope of an ORSA is broad, covering underwriting, credit, market, liquidity, and other risks that it may encounter and that may impact its ability to meet obligations to policyholders.

ORSA measurements and assessments will undoubtedly become more complicated as transgender issues and concerns become increasingly integrated into the insurance industry. Product offerings are likely to change because of legislative mandates and market demands. The new products will impose new financial risks on the insurers that issue the products. They may result in claims of a type, frequency, and magnitude that are unforeseeable. The unforeseeability results from the newness of the products, the relative recency of the risks insured against (and first and third-party claims from them), and the comparative unpredictability of judicial interpretations related to both of those factors.

To compare state laws on ORSA, see the Own Risk and Solvency Assessment topic in the Insurance State Law Comparison Tool.

ESG (Environmental, Social, and Governance) criteria are becoming and will continue to become greater operational factors within corporations and the insurance industry specifically.

Investors generally, including those in stock insurers, and policyholders (who effectively own mutual insurers), increasingly demand and expect insurers to consider ESG-related issues. This includes climate-related issues and disclosures for insurers (such as investments that insurers make in companies that are not climate-friendly) and an insurer’s duty and responsibility toward the environment generally. This is the “E” element of the term.

The social element (the “S” part of the term) relates to how an insurer treats employees, shareholders, and customers. Especially significant to this discussion is how it relates to the transgender community. How does it manage the occupational health, and how does it accommodate the unique health, personal, and privacy needs and rights of transgender employees and other stakeholders? How does the insurer’s behavior in this respect comport with the desires and demands of shareholders, policyholders, and the public? Insurers will need to grapple with these concerns as matters of regulatory compliance.

The governance (“G” element of ESG) was previously discussed.

For more guidance on this issue, see ESG: The New Corporate Conscience for Insurers.

Also within the ambit of operations are the processes that insurers must follow to get regulatory approval for the forms they will use and products they wish to sell. This is distinct from the design and features of the products themselves, which will be discussed separately. Within the ambit of “forms” are included applications for and endorsements to policies. The process involves, among other things, submission of the proposed forms to the regulator and the regulator’s evaluation of them for compliance with state law. Increasingly, state law requires LGBTQ+-related provisions in policies, so the regulatory review process will involve examination for compliance with mandated or prohibited LGBTQ+ provisions. The review is usually conducted by a specialized department within the regulator’s office that may also be responsible for the approval or disapproval of rates. Just like there are differences between the nature of life and health and property and casualty in general, LGBTQ+ and transgender-related differences in the two lines of insurance exist and will be examined in the review process. The purpose of the process is to have the regulator approve or disapprove the policy and related form language.

Another aspect of the operations common to all insurers is preparing required statutory reports, including financial and statistical information related to the volume and resolution of consumer complaints. As the insurance industry is adapting to the new transgender reality and the mandates that attend it, it will be increasingly important for insurers and regulators alike to monitor compliance by insurers with transgender needs and rights.

Insurance Products

The category of insurance products refers to the risk-bearing products that a licensed (authorized) insurer offers for sale to the personal and commercial insurance-buying public, depending on its licensure and the product design. These can be property and casualty policies, life and health policies, annuities, managed care products, reinsurance, and insurance sold in individual and group markets. Statutorily mandated and prohibited provisions apply to their design, cost, coverage, and marketing, increasingly with transgender people in mind. Reinsurance is treated somewhat differently as it is designed and transacted by and to insurers inter se. Therefore, the transaction of it is between parties of approximately equal bargaining power. Nevertheless, it is not unforeseeable that transgender issues may have an impact even on reinsurance as the frequency and magnitude of claims against reinsurance companies may change as transgender-related claims become more common. Just like suits, primarily class actions, have been filed on asbestos, tobacco, and environmental claims, resulting in damage awards exceeding primary and excess limits and implicating reinsurance, it is not unreasonable to think that the same may happen in transgender scenarios.

An insurance product includes the policy itself specifying the subjects of coverage (people or things), risks that are covered and under what circumstances, who or what isn’t covered (exclusions), and circumstances when a subject that was excluded may be brought back into the scope of coverage (exceptions). Importantly, the policy defines operative terms and specifies a dollar amount of coverage and the way(s) that the amount of coverage is calculated if a covered loss occurs. Also importantly, an insurance product includes the application to buy it. There exist transgender implications to all of these, particularly as compared to the way that insurance transactions and products have traditionally worked.

Claims Practices and Procedures

Claims practices and procedures address the compliance aspects of the claims process. The category also addresses the consequences of noncompliance with legal requirements governing the area. Those can include regulatory investigations of claim complaints and the insurer’s duties to comply with regulatory inquiries. The category also deals with what a policyholder must do to initiate a claim, in the absence of which the insurer’s obligations to investigate a claim are not triggered.

A regulator may impose sanctions, including fines and license suspensions, and levy charges of committing unfair claims practices. An insurer can also be subject to civil monetary sanctions if its claims behavior is found to have constituted statutory or common law bad faith if the law of the jurisdiction permits it. The latter can happen, for example, if a claimant contests a claim denial decision or alleges that the insurer took too long to adjudicate it and it violated governing law about how claims must be handled. Especially grievous is when an insurer is shown to have a pattern of handling claims in that way.

In the context of the transgender community, one example of how a claim dispute may arise is if an applicant represented themself on an insurance application as a stated gender without disclosing that they identified as another gender or as undergoing a gender transition process. If the application were underwritten and based on the gender representation on the application, it is conceivable that an intervening claim or one that followed policy issuance may be denied on the theory that there was a misrepresentation on the application. Jurisdictions differ on what constitutes a “material” misrepresentation. Generally, it concerns whether the policy would have been issued at all or at what premium but for the misrepresentation.

In the foregoing scenario, and as the transgender community gains wider understanding and acceptance, it may become more questionable if a “misrepresentation” was made at all. While this is just one example, the universe of claims practices and procedures is changing as insurers see the need to adopt and create internal procedures and interpretations to align with transgender realities and to avoid regulatory sanctions for failing to do so.

Insurers have an ongoing responsibility to train, educate, and supervise adjusters and other personnel involved in the claims process about LGBTQ+-related issues concerning the interpretation, adjudication, or other resolution of insurance claims. This is necessary both for fairness to the policyholder and the insurer’s protection in navigating novel changes in the insurance industry.

Consumer Protection

Consumer protection considers the activities of insurers with policyholders and the public concerning the sale of insurance products and matters occurring after the sale. It includes market conduct, statutory bad faith and unfair claims practices, as well as those behaviors that judicial decisions have recognized as breaches of duties of good faith and fair dealings to policyholders and third parties.

With respect to the transgender community, the concept of consumer protection includes looking at a policy’s express language and considering the consumer’s reasonable expectations of coverage. An insurer must abide by statutes mandating coverage that is expressly applicable to or can reasonably be applied to transgender scenarios and comply with the mandate. An insurer is also responsible for keeping abreast of judicial interpretations of policy language about transgender coverage and as stated in the Claims Practices and Procedures section, ensuring that adjusters and other claims personnel handle claims accordingly.

Rates and Solvency

This category alone may be the raison d’etre of all the others because it deals with the ability of an insurer to pay claims. Stated otherwise, were there not to be an ability to pay a covered claim, one’s insurance would have no purpose. For that reason, oversight of insurers’ financial stability is a paramount function of all insurance regulators, and much of the insurance law of all jurisdictions deals with it. Briefly, a “rate” is the cost of a unit of insurance. The “unit size” (measured in dollar terms) differs between property, casualty, and life and health insurance. Regardless of the kind of insurance, a rate becomes a premium by multiplying it by the number of insurance units purchased.

Solvency refers to the claims-paying ability of an insurer. An insurer is generally considered to be solvent if, by objective measurement, it is expected to be able to pay anticipated claims as they are made.

Although the LGBTQ+ and in particular the transgender factors within the insurance industry are comparatively new, they may impact insurance rates and solvency. For example, in property and casualty and life and health insurance, there have been differences in some insurance rates charged to people who traditionally identified themselves as men and as women. Those differences derived from various factors, including historical actuarial differences between the two. Representative of the transgender-related questions raised within the context of insurance is whether there will be changes in an insurer’s ability to use that historical actuarial data to establish rates, and to that extent, collect enough premium to ensure solvency. Stated otherwise, do, or should, factors of gender identity affect the actuarial calculations that go into establishing and applying insurance rates so that an insurer has enough money to pay claims?

A concomitant of an insurer’s job to maintain solvency of insurers is to ensure that rates charged are not excessive or unreasonably discriminatory. The latter term refers to ensuring that people with the same risk factors, and in the same or similar actuarial grouping, are treated similarly. The question then arises whether a person who identifies as a specific gender is that gender for purposes of setting an insurance rate.

Insurance Intermediaries

Insurance intermediaries are those licensed persons or entities that transact insurance business on behalf of other licensees. An example is a person licensed by the state to sell the insurance products of an insurer. Traditionally, a licensee who is contractually bound to an insurer to sell only that insurer’s products, or a licensee who was an insurer’s employee was called an “agent.” In contrast, a licensee was called a “broker” if they were free to sell the products of any insurer that appointed them to do so. A strict distinction is not now always made, but there is a technical difference that can have legal implications in certain disputes. Some states require that retail entities (such as insurance agencies) become licensed so they, too, are within the ambit of “insurance intermediaries.” Intermediaries include adjusters, third-party administrators, and others involved in the retail or wholesale sale of insurance products and adjudicating claims arising under them.

All persons or entities that are insurance intermediaries are within the scope of the state’s insurance law and must be licensed by the state regulatory authority where they transact business. In turn, state insurance regulatory authority derives from, and is subject to, general state law. To the extent that the state has a statute explicitly and generally protecting transgender rights, people functioning as insurance intermediaries are subject to and benefit from it.

Correlatively, insurers licensed in the state and having an employment relationship with intermediaries are subject to the state’s governing statutes protecting a transgender intermediary’s rights. Even hypothetically, were there not such a state law, an intermediary may attempt to assert LGBTQ+-related claims for violation based on their status under Title VII of the Civil Rights Act of 1964. In 2020, the U.S. Supreme Court held that Title VII applied to employment discrimination against an individual based on sexual orientation or transgender status. Bostock v. Clayton County, 140 S. Ct. 1731 (June 15, 2020). However, Bostock was limited to those in an employment relationship.

In the insurance industry, some relationships between insurers and intermediaries exist that are employer/employee (to which a Bostock analysis would apply), and some are contractual/independent contractor. In the sales context, an example of the latter would be an insurance broker (depending on the degree of control the insurer exercised). In a non-sales context, an example might be an independent adjusting firm hired to handle an insurer’s claim function. Even in a relationship based on contract, not employment, courts have held that Title VII claims can be asserted for reasons of LGBTQ+ status. Varner v. APG Media of Ohio, LLC, 2019 U.S. Dist. LEXIS 4109 (Jan. 9, 2019).

Medical Transition Insurance Considerations

As noted previously, there are various potential aspects to transitioning in the transgender context, including gender affirmation (confirmation)/sex reassignment surgery. This involves professional liability risks of a great magnitude, as it contemplates a range of pre-surgical and evaluations and other processes. However, even short of surgery, other forms of intervention for gender dysphoria carry risks and potential liabilities for those involved. No matter the degree of the transition, if gender identity change is sought, various insurance coverage involvements can be triggered, and the potential for claims can emerge. In turn, some of the company operations discussed above come into play. For those reasons, this discussion is saved for last.

Just like transgender considerations are new to the insurance industry, they are relatively novel to coverage and tort litigation. However, some parallels may be drawn to fairly settled principles of law.

In emerging actions, the claimants may include individuals who underwent surgery, therapy, or counseling. The claimants may also be their survivors, parents, or guardians. The defendants can be physicians, hospitals, mental health counselors, or schools. Among the grounds of action may be negligence (e.g., if a physician did not correctly or comprehensively conduct dysphoria assessment, reassignment, or reversal surgery, and the hospital may be sued for vicarious liability). These actions can implicate the professionals’ malpractice insurance and the Claims Practices and Procedures discussed above, if only due to the novelty and complexity of the claim allegations and investigation needed to handle a claim against a policyholder. For example, in a suit filed in February 2023, an adolescent alleged that she was effectively coerced into medical transition surgery due to the physicians’ and a hospital’s failure to evaluate and diagnose her properly. The lawsuit contends that a proper diagnosis and course of treatment would not have led her to the surgery. Although the suit is predicated on an initial sex change, it illustrates the array of allegations that an attorney for an insurer may have to face in defending any claim based on gender reassignment.

In addition to the claims category discussed, post-gender transition considerations enter directly into the Insurance Products and Consumer Protection categories. Subject to policy conditions and the policy version, some insurers covering gender affirming surgery when a policyholder desires to convert to their gender of choice also cover surgery to revert the policyholder to that of the sex assigned at birth. The latter surgery is considered medically necessary “for persons who regret their gender-related surgical intervention.” That said, it is typically required that the same elements of proof of medical necessity be shown for the reversal to be covered. In all events, whether there will be coverage for reversal procedures depends upon the terms and conditions of the policy and the policyholder’s ability to meet them.

Punitive Damages

Examine VA S.B. 960, a bill the Virginia legislature considered in early 2022, which would amend Virginia law to add Chapter 21, known as the Youth Health Protection Act, to Title 32.1. Although it did not pass before the legislative session ended, the Act could have had enormous impacts on Virginia law, including insurance law. What’s more, if enacted in Virginia, the potential existed for copycat legislation elsewhere.

The aim of the bill was to keep within the strict purview of parents, guardians, or custodians of children the power to “withhold consent for any treatment, activity, or mental healthcare services that are designed and intended to form their child’s conceptions of sex and gender or to treat gender dysphoria or gender nonconformity.”

The proposed law went even further. It prohibited all government agents, employees of the Commonwealth of Virginia, political subdivisions, or any governmental entity (except law enforcement) from “encouraging or coercing a minor to withhold information from the minor’s parent.” Also, the proposed law would have prohibited government agents from withholding information from a minor’s parent that is relevant to the minor’s physical or mental health. Presumably, and because it appeared within the same proposed law, “mental health” included gender dysphoria.

But what would have had potentially severe implications for insurers, medical providers, and certain others (unidentified in the statute) is the provision in the law providing for civil remedies. The proposed law provided, in pertinent part:

A.

Any person may seek injunctive relief and may sue for any violation of any provision of the act against the clinic, healthcare system, medical professional, or other person responsible for the violation and recover compensatory damages, punitive damages, and reasonable attorney fees and costs. (Emphasis added)

What does that mean? What are its implications?

The first question is easier to answer than the second. The quick answer to the second question may be “innumerable.” Issues such as these arise from the second question:

• Will the professional liability insurance policies of the potential target defendants cover punitive damages?
• Will violation of the statute, without more, suffice as the basis of punitive damages?
• If not, what more is needed?
• Who has really been damaged? Must the parent or guardian suffer a monetary loss (counseling or psychiatric bills, for example) to prove damages?
• What if the minor is now at ease with themselves posttreatment? Has there been damage to the parent or guardian in that case? –and–
• More, more, more.

To compare state laws on punitive damages, see the Punitive Damages topic in the Insurance State Law Comparison Tool.

For additional guidance on the insurability of punitive damages, see Punitive Damages Standards State Law Survey and Punitive Damages Insurability State Law Survey​​.

Looking Ahead

This discussion has just scraped the surface of the potential implications of transgender issues in the insurance industry and given some idea of what the industry will have to address to meet the specific and up-to-now unmet needs of an evolving population.

This practice note from Practical Guidance, a comprehensive resource providing insight from leading practitioners, is reproduced with the permission of LexisNexis. Reproduction of this material, in any form, is specifically prohibited without written consent from LexisNexis.

End of Document