What is subrogation in the context of insurance?

Subrogation in the context of insurance refers to the process by which an insurance company, after paying a claim to its insured, seeks reimbursement from the responsible third party or their insurer. This process allows the insurer to recover the costs it has paid out on behalf of its policyholder, effectively stepping into the shoes of the insured to pursue a claim against the party at fault.

For example, if a driver is in an accident caused by another driver and their insurance company pays for the damages, the insurer can use subrogation to claim those costs back from the other driver's insurance company. This helps keep insurance premiums lower since the insurer can recoup expenses incurred from claims that were not the fault of their policyholder.

Understanding subrogation is crucial for both policyholders and adjusters, as it plays a significant role in the insurance claims process and affects how losses are managed financially.