What does the term "subrogation" mean in insurance?

Subrogation is a key concept in insurance that refers to the insurer's right to step into the shoes of the insured and pursue recovery from a third party that may be responsible for the loss after the insurer has paid a claim. This process allows the insurance company to recover the costs it incurred in settling the claim, effectively reducing its financial loss.

In practical terms, if an insured party suffers a loss due to someone else's negligence and the insurance company compensates the insured, the insurer has the legal right to seek compensation from that third party. This ensures that the responsible party is held accountable for their actions while also preventing the insured from profiting from their insurance coverage.

Understanding subrogation is critical for both insurers and policyholders as it helps maintain fairness in the insurance process and prevents insured individuals from receiving a windfall from a loss.