What is "subrogation" in insurance?

Subrogation is a crucial concept in insurance that allows an insurer to step into the shoes of the insured after paying a covered loss and seek recovery from a third party responsible for that loss. When an insurance company pays a claim to its policyholder, it may then have the legal right to pursue any party that contributed to the damage or loss. This right helps to ensure that the insurer can recoup some of the costs associated with the claim, thereby keeping premiums more stable for all customers.

By utilizing subrogation, insurance companies can help to hold the responsible parties accountable and prevent unjust enrichment, where the insured receives compensation from both the insurer and the third party. This process emphasizes the principle of liability in insurance, ensuring that the party at fault ultimately bears the financial burden.

Other options present different concepts within the insurance domain. Valuing claims for payment deals with determining how much a claim is worth rather than recovering funds from third parties. A clause denying coverage for intentional acts is a standard exclusion found in many policies that pertains to the nature of covered events. Lastly, premium calculation methods for high-risk policies involve assessing risk factors and underwriting rather than the recovery of paid claims through subrogation.