What does the term "subrogation" refer to in insurance?

Subrogation in insurance is the process by which an insurer seeks to recover costs from a third party responsible for a loss that the insurer has already compensated to the insured. When an insurance company pays a claim, it often has the right to pursue that claim against any responsible third party to recoup the expenses incurred. This mechanism ensures that the financial burden of the loss does not fall unduly on the insurer and helps maintain lower premiums for insured individuals.

By understanding subrogation, consumers can appreciate how insurance companies manage their risk and costs. This process is essential for ensuring that the responsible party is held accountable and prevents the insured from collecting twice for the same loss—once from their own policy and again from the responsible party. Subrogation helps maintain the integrity of the insurance system, allowing it to function in a fair and economically sound manner.