What does subrogation allow an insurer to do?

Subrogation allows an insurer to take legal action against an at-fault party to recover damages that they have paid to the insured. When an insurance company pays a claim to its policyholder for a loss that was actually caused by another party, subrogation gives the insurer the right to seek reimbursement from that third party. This process helps keep insurance premiums more affordable for all policyholders, as it allows the insurance company to recoup some of its expenses.

The concept is integral to how insurance works, as it reinforces the principle that the responsible party should ultimately bear the financial burden of the loss. By exercising the right of subrogation, insurers can reduce their losses and maintain financial stability, which can positively impact the overall functioning of the insurance market.