In the insurance industry to cede means to transfer a risk from an insurance company (the voluntary market) to a reinsurance company who will write policies for those deemed to be high risk drivers.
Most states' insurance regulators work with the insurance industry to make it possible for high risk drivers to acquire the required car insurance, so that the motorist does not drive around uninsured. Special insurance plans set up by various states can be known as residual, shared, ceded or involuntary markets.
The North Carolina Department of Insurance, the insurance regulator for NC, states that since the financial responsibility laws require individuals to be covered for Bodily Injury Liability and Property Damage Liability up to the minimum limits, insurance companies cannot refuse to write those coverages. If they do not want to bear the risk, insurance companies will place high-risk drivers in the reinsurance facility.
The purpose of the facility is to assure the availability of motor vehicle liability insurance to all eligible risks and thus from them you receive "ceded liability" coverages. The types of coverage offered are:
- Bodily Injury Liability from the minimum limits required to a maximum of $100,000 each person, $300,000 each accident;
- Property Damage Liability from the minimum limits required to a maximum of $50,000 each accident;
- Medical Payments Coverage from $1,000 to a maximum of $2,000 each person; (This coverage is not available for motorcycles.)
- Underinsured Motorist Coverage to a maximum $1,000,000 each person and each accident for Bodily Injury Liability; and
- Uninsured Motorist Coverage from the minimum limits required of Bodily Injury Liability and Property Damage Liability to a maximum of $1,000,000 each person and each accident for Bodily Injury Liability, and $50,000 for property damage (with a $100 deductible).
The NC DOI notes that it may be difficult for a high-risk driver to obtain Collision, Comprehensive and other coverages that are not offered through the reinsurance facility. The most common method is through a company that writes nonstandard business. Your company may ask you to sign a "consent to rate" form. This would mean that you agree to pay rates higher than what has been filed with the North Carolina Department of Insurance in order for the company to write the coverage.
The North Carolina Reinsurance Facility was created to provide motor vehicle insurance to those eligible risk applicants that insurance companies would not voluntarily insure. When an insurance company agent determines that an applicant for insurance is found to be an unacceptable risk, the agent will "cede" the risk to the Facility.
North Carolina General Statute 58-248.31(a) mandates that all insurance companies that write motor vehicle insurance in North Carolina must be members of the Facility and must share equitably the cost of the Facility. "Cession" transfers the risk of loss from the individual insurer to all insurers through the operation of the Facility.
So ceded liability in North Carolina refers to liability coverages that are available to "high risk" drivers by an insurance company transferring the risk from them to the reinsurance facility. The state makes this possible so that motorists who may not be able to otherwise obtain insurance can get the state required liability coverages placed on their vehicle instead of driving without insurance.