What is "subrogation" in the context of insurance?

Subrogation is a critical principle in insurance that enables an insurer to pursue recovery from a third party that is responsible for causing a loss to an insured party. When an insurer pays out a claim to its policyholder, the insurer effectively steps into the shoes of the insured. This means that the insurer can then seek reimbursement for the amount it paid out from the party that caused the loss.

For example, if someone is involved in a car accident and their insurance company covers the damages, the insurer can later sue the other driver or their insurance company to reclaim the money paid to the insured. This process not only helps the insurer recoup some of its losses but also keeps insurance premiums lower for policyholders by holding the responsible parties accountable for their actions.

Other options are not aligned with the definition of subrogation. The cancellation of a policy before renewal, modifying coverage during a claim, or discussing the waiting period before a policy takes effect do not capture the essence of subrogation, which is focused on the recovery aspect after a loss has been paid.