What is the role of subrogation in insurance?

Subrogation is a crucial concept in the insurance industry that allows an insurance company to pursue a third party that has caused a loss to the insured party in order to recover the costs of claims paid. This process arises when the insurance company pays a claim to its policyholder for damages, and subsequently seeks reimbursement from the responsible party, usually through legal action or settlement.

The role of subrogation is important because it helps to mitigate the financial impact of claims on the insurer, essentially allowing the insurance company to recoup expenses resulting from claims. By doing so, subrogation can ultimately contribute to stabilizing insurance premiums, as insurers can recover some of their losses and reduce the costs that might otherwise be passed on to all insured individuals in the form of higher premiums.

In this context, subrogation enables the insurance system to function more efficiently and equitably, ensuring that those who are liable for damages contribute to the costs associated with those damages, rather than spreading the financial burden solely among policyholders through increased premiums.