Why is subrogation important for insurance companies?

Subrogation is a crucial aspect of the insurance process because it enables insurance companies to recover costs after they have paid out a claim to an insured party. When an insurance company pays for a loss incurred by its policyholder, subrogation allows that company to seek reimbursement from the third party that caused the loss. This process is vital for maintaining the financial health of the insurer, as it helps to recover funds that can be used to pay other claims.

By engaging in subrogation, insurance companies are able to reduce their overall expenses, which in turn helps keep premiums more stable for all policyholders. It also ensures that the party responsible for the loss bears the financial burden, rather than passing those costs entirely onto the insured individuals. Thus, subrogation plays a key role in ensuring a fair distribution of costs within the insurance system and is fundamental to the operation of property and casualty insurance.