What does "subrogation" mean in the context of insurance?

In the context of insurance, subrogation refers to the process by which an insurer seeks to recover costs from the party that is responsible for causing a loss or damage. This typically occurs after an insurer has compensated the insured for their claim. Once the insurer pays out a claim, they have the right to pursue recovery of that amount from third parties who were at fault for the incident that led to the claim.

This principle helps to uphold the fundamental idea that a policyholder should not benefit from an insurance payout to a greater extent than their actual loss. By exercising the right of subrogation, the insurer can recoup funds, which in turn helps manage overall insurance costs and premiums. Understanding subrogation is crucial for both insurers and policyholders as it plays a significant role in claims management and the financial dynamics of the insurance industry.