What is meant by "subrogation" in insurance?

Subrogation refers to the insurer's right to pursue a third party that caused a loss to the insured, in order to recover the costs that the insurer has paid for the claim. This process is important because it helps the insurance company recoup its losses, which can help keep premium costs down for policyholders.

When an insurer pays a claim to the insured, it essentially takes on the rights of the insured to seek compensation from the party at fault. This means that if someone else's negligence led to the insured's loss, the insurer can step in to claim damages from that responsible party. For example, if an insurer pays for damages caused by a car accident where another driver was at fault, the insurer can then pursue that driver or their insurance company for reimbursement.

This mechanism is fundamental in the insurance industry, as it allows for the transfer of financial responsibility from the insured to the responsible third party, maintaining fairness in liability and ensuring that the insured does not pay more than necessary for their losses.