What does "subrogation" mean in insurance?

Subrogation in insurance is a fundamental principle that refers to the insurer's right to step into the shoes of the insured after it has paid a claim. Essentially, once the insurer compensates the policyholder for a loss, it gains the right to pursue recovery from any third party that may have contributed to or caused that loss. This process allows the insurer to recoup some or all of the costs associated with the claim, helping to keep insurance premiums lower for all policyholders by preventing losses from being absorbed solely by the insurer.

In instances of subrogation, if, for example, a policyholder is involved in an accident caused by another driver, the insurer will pay the policyholder for their damages. Subsequently, the insurer may seek reimbursement from the at-fault driver or their insurance company. This right to recover funds is crucial as it mitigates losses for the insurer and maintains the overall financial health of the insurance pool.

The other options do not accurately convey the meaning of subrogation, focusing instead on different aspects of insurance operations, such as distributing benefits, pooling premiums, or assessing claims history.