What is the function of subrogation in insurance?

Subrogation is a crucial function in the insurance industry that allows an insurer to recover costs after paying a claim on behalf of the insured. When an insurance company settles a claim, it may pursue the right to seek reimbursement from a third party that caused the loss. This effectively transfers the rights of the insured against the third party to the insurer.

By exercising subrogation, the insurer can recover amounts paid to the insured for their loss, which helps keep insurance premiums manageable for all policyholders. This practice also discourages negligent behavior since parties responsible for losses could be directly held accountable for their actions, thereby upholding fairness in the insurance process.