What does the term "subrogation" refer to in claims handling?

Subrogation refers to the insurance company's right to pursue recovery of costs from a third party that caused a loss to the insured under the policy. This means that when an insurer pays out a claim to a policyholder, they have the legal right to step into the shoes of the policyholder and seek reimbursement from any responsible parties. This process helps insurance companies manage their costs and can also lower premiums for policyholders in the long run.

In practical terms, if an auto insurer pays for damages to a vehicle that resulted from an accident caused by another driver, the insurer can seek to recover those costs from the at-fault driver or their insurance company. This not only helps the insurance company recoup its expenses but also emphasizes the importance of accountability for losses caused by third parties.