What does the term "subrogation" refer to in insurance?

Subrogation is a key principle in insurance that allows an insurer to pursue recovery from third parties after they have compensated a policyholder for a loss. When an insurer pays a claim to the insured, they may have the right to "step into the shoes" of the insured to recover the costs from the party responsible for the loss. This process helps the insurance company to recoup some or all of the funds it has paid out, effectively reducing the overall cost of claims and keeping premiums more stable for policyholders.

In the context of the other options, the allocation of coverage amount among multiple policies pertains more to the coordination of benefits or how limits and coverages are distributed when insurances overlap, which is not what subrogation focuses on. Required allocation of coverage based on total insurance involves determining how much coverage applies given multiple policies, but again, this is distinct from the process of pursuing recovery from third parties. Protection from uninsured claims pertains to how an insurer handles risks associated with parties that do not have insurance, which is not related to the recovery process that subrogation deals with. Thus, the definition tied to pursuing third parties for recovery accurately encapsulates the essence of subrogation in the insurance context.