What is the definition of "subrogation" in the insurance context?

Subrogation in the insurance context refers to the right of an insurer to step into the shoes of the insured and seek reimbursement from a third party that caused a loss after the insurer has paid a claim. This process allows the insurance company to recover the amount it has paid on a claim, ensuring that the responsible party ultimately bears the financial burden.

For example, if an individual is in a car accident where another driver is at fault, and they file a claim with their own insurance company to cover their damages, the insurance company may later pursue the at-fault driver or their insurance company for recovery of the claim amount paid out to the insured. This helps to keep insurance premiums stable since the costs of claims can be recovered from those responsible for the loss.

Understanding subrogation is crucial for insurance professionals as it directly impacts claims management and recovery processes. It also emphasizes the principle of indemnification, where the insured should not profit from a loss but rather receive compensation equivalent to their loss.