What does "subrogation" allow an insurance company to do?

Subrogation is a key principle in the insurance industry that allows an insurance company to pursue recovery of funds from a third party that may be responsible for a loss. When an insurer pays a claim to an insured, it effectively "steps into the shoes" of the insured regarding that claim, allowing the insurance company to seek repayment from the party at fault. This process helps the insurer recoup the amounts it has paid out, maintaining the financial integrity of the insurance system and keeping premiums lower for all policyholders.

For example, if an insured party is involved in a car accident caused by another driver, the insured’s insurance company may cover the damages. Through subrogation, the insurance company can then pursue the driver at fault for reimbursement of the money spent on the claim. This reinforces the idea that, although the insured may seek coverage through their own policy, the ultimate burden of responsibility and payment should rest with the negligent party.