What does subrogation allow the insurer to do after compensating the policyholder?

Subrogation is a fundamental principle in insurance that allows an insurer to step into the shoes of the insured after paying a claim. This process enables the insurer to pursue recovery of the amount it has paid out from the party responsible for causing the loss or damage. Essentially, once the insurance company compensates the policyholder, it gains the right to seek reimbursement from the at-fault party, who is legally responsible for the claim.

This mechanism helps insurance companies manage their costs and maintain lower premiums for policyholders. By recovering losses from the at-fault party, the insurer can offset some of its own financial exposure and ensure accountability for negligent actions that resulted in the loss.

Understanding subrogation is critical because it illustrates how the insurance system works collectively to redistribute costs and responsibilities after an incident occurs, ensuring that the responsible party ultimately bears the financial burden of their actions.