What is 'subrogation' in insurance?

Subrogation is a key concept in insurance that refers to the right of an insurer to pursue a third party that may have caused a loss to the insured. When an insurance company pays a claim to the insured for a loss, it may then seek to recover the cost of that claim from the responsible party. This process allows the insurer to mitigate its losses and helps keep insurance premiums stable for policyholders.

For example, if a driver is involved in an accident caused by another driver, and the first driver's insurance pays for the damages, the insurance company can then pursue the at-fault driver for reimbursement of the amount it paid. This benefits the insurance company and, indirectly, helps keep costs lower for all insured individuals.

Understanding subrogation is crucial for anyone involved in insurance, as it is a fundamental part of the claims process and affects the financial dynamics between insurers and the insured.