Which of the following best describes subrogation?

Subrogation is a crucial concept in insurance that refers specifically to the process undertaken by insurers to recover the amount they have paid to policyholders from the party that was at fault for the loss. When an insurer pays a claim to a policyholder, the insurer effectively steps into the policyholder's shoes regarding the right to pursue any legal remedy against the at-fault party.

This mechanism helps to maintain fairness in the insurance system; the insured gets compensated for their loss without suffering a financial burden, and the insurer has the right to recover its costs from the responsible party. In many cases, it allows insurers to keep premiums lower and mitigate the risks associated with large claims.

Other options do not accurately define subrogation. For instance, while recovering damages is part of the insured's rights, it does not occur directly as described in the first option. The obligation to inform insurers about losses relates to the policyholder's duties, but does not pertain to subrogation. Lastly, countering insurance fraud is a separate issue that involves different procedures and regulations distinct from the subrogation process.