What is subrogation in insurance?

Subrogation in insurance refers to the process where an insurance company seeks reimbursement from the party responsible for a loss after it has paid a claim to the insured. This mechanism allows insurers to recover costs that they have paid out for claims, thereby minimizing their own financial losses.

When an insurer pays a claim to its policyholder for damages or losses, they assume the right to pursue recovery from the party at fault. If the insurer successfully recoups the funds, it can help keep premiums lower for policyholders since the insurer is able to offset its losses. This process is essential for maintaining the financial balance in the insurance industry since it helps hold the party responsible for the loss accountable.

For example, if a driver is involved in an accident caused by another driver, once the insured party's insurance company pays for the damages, they can go after the other driver’s insurance to recover those costs, reflecting the principle of holding the responsible party liable. This not only serves the insuring company’s interest but also supports the notion of fairness in managing risks associated with insurance claims.