What does "subrogation" in insurance refer to?

Subrogation in insurance is the process that allows an insurer to seek reimbursement from a third party that caused a loss for which the insurer has already compensated the insured. This process is crucial because it helps maintain fairness in the insurance system. When an insurer pays a claim to the insured, they incur a loss. Through subrogation, the insurer can pursue recovery against the party that is actually liable for the loss, which in turn can help keep insurance premiums lower for policyholders by preventing the insurer from absorbing all losses.

This process operates on the principle that the insured should not profit from their loss and that the responsible third party is held accountable. Such recovery ensures that liability for the loss remains with the party that caused it, promoting responsible behavior among those who may cause harm or damage.