What is subrogation in insurance?

Subrogation in insurance refers to the right of an insurer to pursue a third party for reimbursement after it has compensated the insured for a loss. This process occurs when the insurer pays a claim to the policyholder and then seeks to recover that amount from a responsible third party. The concept is rooted in the principle that a policyholder should not benefit from a loss and that costs should be transferred back to the party that is legally liable for the incident.

When an insurer exercises its right to subrogation, it typically does so after the policyholder has received payment for their claim. This allows the insurer to minimize its own losses and ultimately helps to keep insurance premiums more stable for all policyholders. Subrogation also serves to hold individuals or companies accountable for their actions, ensuring that they bear the financial responsibility for their negligence or wrongful acts.

The other options outline different aspects of insurance that do not relate to subrogation. Determining policy premiums involves actuarial science and underwriting, while choosing coverage options pertains to the selection process by the insured. The procedure for canceling a policy deals with policy management rather than the recovery of funds after a claim has been paid. Only the pursuit of reimbursement from another party aligns with the definition of subrogation