What is subrogation in the context of insurance?

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Subrogation refers to the process by which an insurance company seeks to recover costs from third parties who are responsible for causing loss or damage that the insurer has already compensated its policyholder for. In this context, when an insurer pays out a claim to its insured for a covered loss, they acquire the right to pursue recovery from any third party who may have caused that loss. This principle helps to ensure that the responsible party ultimately bears the financial burden of the loss rather than the insurer having to absorb it completely.

By engaging in subrogation, insurers can maintain a healthier claims reserve and potentially lower costs which can ultimately help in keeping premiums more stable for policyholders. It is a vital aspect of the claims process, ensuring fair accountability and mitigating the financial impact on the insurance company.