What does subrogation entail?

Subrogation is a key concept in insurance that refers to the process by which an insurance company seeks reimbursement from a third party for a claim it has already paid out to its insured. When an insurer pays for damages or losses incurred by its policyholder, it often has the right to pursue the party that caused the loss to recover the funds it paid. This mechanism helps ensure that the responsible party ultimately bears the financial burden of the damages.

For instance, if a driver is involved in an accident that is not their fault, their insurance company may cover the repair costs for their vehicle. After settling the claim, the insurance company can then engage in subrogation to reclaim those costs from the at-fault driver's insurer. This process prevents the insured from losing a benefit they would otherwise be entitled to while allowing the insurance company to manage its financial exposure.

Other choices do not accurately describe subrogation. Canceling an insurance policy or assessing property value pertains to different areas of insurance management and valuation, while establishing new insurance policies relates to the initiation of coverage rather than addressing recovery after a claim has been made. Understanding subrogation is essential for comprehending how insurance companies manage risk and costs, ultimately serving both the insurer and the insured in ensuring accountability and