What does "subrogation" mean in insurance?

Subrogation in insurance refers specifically to the process whereby an insurer, after compensating an insured for a covered loss, gains the right to step into the shoes of the insured and pursue recovery from a third party that may have caused that loss. This means that the insurer can seek reimbursement from the responsible party, thus allowing the insurer to recover some or all of the costs associated with the claim paid to the insured. This mechanism serves to prevent the insured from receiving a double recovery for the same loss (once from the insurer and again from the third party). By doing so, subrogation helps keep insurance premiums lower and ensures that liability is assigned appropriately.

This definition aligns closely with the concept of risk transfer and emphasizes the relationships between the insured, the insurer, and third parties involved in liability claims. Understanding subrogation is crucial for consumers and producers alike, as it directly impacts the financial dynamics within the insurance industry and the rights and obligations of all parties in a claim situation.