What is the purpose of subrogation in insurance?

Subrogation is an essential principle in insurance that enables insurers to pursue reimbursement from a third party responsible for causing a loss. This process occurs after the insurer pays a claim to the policyholder. By allowing the insurer to seek recovery of the funds it has paid out, subrogation ensures that the party at fault ultimately bears the financial responsibility for the loss. It prevents the insured from receiving a double recovery—being compensated by both the insurer and the responsible third party.

The mechanism of subrogation not only helps in recouping losses for the insurer but also helps to keep insurance premiums lower for everyone. When insurers can recover costs from at-fault parties, they are less likely to raise premiums in response to high claims costs.

Understanding subrogation clarifies its crucial role within the broader context of risk management and insurance operations, emphasizing the importance of accountability and financial fairness in the insurance system.