What is the principle of subrogation in insurance?

The principle of subrogation in insurance refers to the right of an insurer to pursue a third party for recovery of costs incurred due to a loss that the insurer has already compensated the insured for. When an insurance company pays a claim to the policyholder for a loss caused by someone else's negligence, it can then step into the shoes of the insured and seek reimbursement from the party responsible for the loss. This process ensures that the insured does not profit from insurance and that the financial burden falls on the party at fault.

Subrogation serves several important functions in the insurance industry. It helps to keep insurance premiums lower by allowing insurers to recover some of their losses. It also promotes accountability among third parties who may cause damage, as they can be held financially responsible through the insurer's actions. This principle is fundamental to maintaining fairness and efficiency in the handling of insurance claims and losses.