What does "subrogation" in insurance refer to?

Subrogation in insurance refers to the right of an insurer to pursue a third party that has caused a loss to the insured after the insurer has paid out a claim. This legal concept allows the insurance company to step into the shoes of the policyholder and seek reimbursement for the amounts it has paid on their behalf. By doing so, it helps ensure that the responsible party is held accountable for the damages they caused, allowing the insurance company to recover some or all of the costs associated with the claim.

This process is significant because it helps keep insurance premiums lower; if insurers can recover costs from third parties, they will be less likely to raise premiums for their policyholders. Subrogation is a key element in the functioning of insurance policies and plays an important role in risk management. In this context, it directly supports the principle of indemnity, ensuring that the insured is made whole again, while also allowing insurers to mitigate their financial losses.