What is meant by "subrogation" in insurance terminology?

Subrogation is a key principle in insurance that allows an insurer to step into the shoes of the insured after paying a claim for a loss. This means that once the insurance company compensates the policyholder, it gains the right to seek reimbursement from any third party that may have caused or contributed to that loss. For example, if a driver is involved in an accident due to another driver's negligence, the first driver’s insurance may pay for the damages. That insurer can then pursue the other driver or their insurance for recovery of the amount paid out. This process helps prevent the insured from receiving a double recovery and allows insurers to recoup costs, ultimately keeping premiums more affordable for all policyholders.

The other options do not accurately describe subrogation; cancelling a policy, adjusting claims, and renewing a policy refer to different aspects of insurance operations and do not encompass the essence of what subrogation entails.