What does subrogation in insurance refer to?

Subrogation in insurance refers to the right of an insurance company to pursue a third party that caused an insurance loss to the insured. This process allows the insurer to recover the amounts paid to the insured for the loss. When a claim is paid out to the insured, the insurance company steps into the shoes of the insured to seek compensation from any responsible party.

This concept is crucial in ensuring that the financial responsibility rests with the party that caused the damage or loss, rather than on the insurance provider. It helps keep insurance costs lower for everyone because the insurance company can reclaim some of its losses, thereby reducing the overall burden.

The first option accurately describes the essence of subrogation, focusing on the financial responsibility and interaction between the insurer and the at-fault party, which is fundamental to how claims are handled in the insurance industry. The other options, while related to insurance, do not accurately capture the definition and function of subrogation as it specifically pertains to the rights and responsibilities following an insurance claim.