What is the concept of subrogation in insurance?

Subrogation is a fundamental principle in insurance that allows an insurer to pursue recovery from a third party that is responsible for causing a loss. When an insurer pays a claim to its insured, it may then seek to recover that amount from the party that caused the damage or loss. This process helps to prevent the insured from receiving a double benefit — being compensated by both their insurer and the responsible party. By exercising the right of subrogation, insurers can maintain premium levels and reduce costs, as they can recover some of the payouts made on claims.

Understanding subrogation is crucial, as it highlights the partnership between insurers and policyholders in managing risk and financial responsibility. This concept ensures that those who are at fault for damages are held accountable, which can also deter negligent behavior in the future.