What does the term "subrogation" mean in insurance?

Subrogation refers to the right of insurers to pursue a third party that caused an insurance loss to recover the amount of the claim paid to the insured. This process allows the insurance company to step into the shoes of the insured after compensation has been made. For example, if a driver is involved in an accident that is not their fault, the insurance company will compensate the driver for their losses. Following this, the insurer can then seek reimbursement from the other driver or their insurance company, as they were the responsible party for the loss.

This mechanism is essential for keeping premiums lower for insured individuals, as it allows insurance companies to recover costs and helps prevent unjust enrichment of the insured. It fosters accountability by enabling insurers to hold third parties liable for damages they cause, promoting a sense of fairness within the insurance system. Understanding subrogation is crucial for both insurers and policyholders, as it directly affects claim processing and the financial responsibilities of all parties involved.