What is "subrogation" in insurance?

Subrogation in insurance refers to the process by which an insurance company seeks reimbursement from a third party that is responsible for causing a loss. This generally occurs after the insurer has paid a claim to the insured for damages incurred from an accident or covered event. Essentially, once the insurer compensates the insured for their losses, it steps into the shoes of the policyholder and attempts to recover the amount paid by pursuing the responsible third party.

Subrogation serves multiple purposes: it helps to prevent the insured from profiting from insurance claims, promotes accountability among those who cause damage, and allows insurers to manage their costs effectively. Through this mechanism, insurers can recoup funds and ultimately maintain lower premiums for their policyholders.

The other options do not accurately describe subrogation. Canceling a policy refers to the termination of the insurance contract, sharing payments between insurers involves reinsurance arrangements, and evaluating claims to prevent fraud pertains to claims management rather than the pursuit of recovery from third parties.