In insurance, what does “subrogation” refer to?

Subrogation is a key concept in the insurance industry that refers to the process where an insurance company seeks reimbursement from a third party who is responsible for a loss or damage covered by the policy. After compensating the insured for their claim, the insurer is entitled to pursue recovery from the party at fault. This process helps insurance companies minimize their losses and often reduces costs for policyholders, as it allows insurers to recover the amounts they have paid out.

By pursuing subrogation, the insurance company ensures that the financial burden of the loss is ultimately placed on the responsible party, rather than solely on the insurer or the insured. This is crucial for maintaining the financial integrity of the insurance system and keeping premiums more affordable for policyholders. The other options do not encapsulate the true essence of subrogation, which specifically involves recovering funds from a third party responsible for the claim.