What does the term "subrogation" refer to in insurance?

Subrogation is a fundamental principle in the insurance industry, referring specifically to the right of an insurer to seek compensation from a third party who may be responsible for a loss that the insurer has already covered. This process allows the insurer to recover costs they have paid out to the insured when the insurer identifies that another party is liable for the damages.

For instance, if an insured driver suffers damage due to another driver’s negligence, the insured's own insurance company may pay for the repairs or losses. After fulfilling their obligation to the insured, the insurer can then pursue the at-fault party or their insurer to recover the costs they incurred. This mechanism helps keep insurance premiums lower by allowing insurers to shift the financial burden back to those actually responsible for an incident.

The other options do not accurately define subrogation. Evaluating damages relates more to claims assessment processes rather than the recovery of costs. Calculating premiums involves determining the cost of insurance coverage based on various risk factors and is a different aspect of insurance operations. The insured's choice to forfeit claims does not connect with subrogation, as it pertains more to decisions made by the policyholder regarding their claims, not the insurer's rights.