What does 'subrogation' refer to in insurance?

Subrogation refers to the right of an insurer to step into the shoes of the insured after paying a claim and seek recovery from a third party that is responsible for the loss. This means that if the insurer pays for the damages incurred by the insured due to someone else's negligence or wrongful action, the insurer can pursue that third party to recover its expenses. This process not only helps the insurance company recoup costs but also holds the party responsible accountable for their actions, ultimately reinforcing the principles of liability and responsibility in insurance claims.

The concept is critical as it helps insurers manage risk and costs, which can result in lower premiums for insured individuals in the long run. It also emphasizes the importance of ensuring that all parties bear the costs associated with their own actions and decisions.