In insurance, what does 'subrogation' allow an insurer to do?

Subrogation is a fundamental principle in insurance that enables an insurer to pursue recovery from a third party after it has compensated the insured policyholder for a loss. When an insurer pays a claim, it essentially steps into the shoes of the insured and gains the right to seek reimbursement from any party that may be responsible for the loss. This process helps the insurer recover some or all of the costs incurred in settling the claim, thus preventing the insured from profiting from the insurance payout and the insurer from suffering a financial loss due to the actions of a third party.

This concept ensures that the financial burden of a loss is placed on the responsible party rather than on the insurer or the insured, promoting fairness within the insurance system. By allowing the insurer to recover losses from third parties, subrogation also helps keep premium costs more manageable for policyholders, as it reduces the insurer's overall expenses for claims.