What is "subrogation" in the insurance context?

Subrogation is an essential concept in the insurance industry, referring specifically to the right of an insurer to pursue recovery from a third party after it has compensated the insured for a loss. This mechanism allows the insurer to "step into the shoes" of the insured and seek reimbursement from the party responsible for the loss.

The process begins when an insured submits a claim, and the insurer pays for the damages or losses incurred. Subsequently, if another party is found to be at fault for the loss—such as in cases involving car accidents or property damage—the insurer can initiate subrogation to reclaim the amount paid to the insured. This serves not only to recover costs for the insurer but also helps to keep premiums lower by ensuring that the responsible party ultimately bears the financial burden.

In contrast, the other options do not accurately describe subrogation. The adjustment of coverage after a claim relates to policy modifications, while the temporary suspension of policy benefits pertains to conditions under which an insurance policy might be paused or its benefits withheld. Renewing an insurance contract involves extending the coverage term but has no connection to the recovery of costs from third parties. Understanding subrogation is crucial, as it exemplifies the collaborative roles of insured parties and insurers in mitigating losses and