What is the concept of subrogation in insurance?

Subrogation in insurance refers to the process where an insurer, after paying a claim to their insured, gains the right to pursue recovery from the party who was actually responsible for the loss. This concept primarily serves to prevent the insured from collecting payment from both the insurer and the responsible third party for the same loss, thus ensuring that the financial burden falls on the party at fault.

When the insured experiences a loss due to the actions of another party, the insurer compensates the insured for their damages. After this payment, the insurer steps into the shoes of the insured, meaning they acquire the right to seek reimbursement from the third party responsible for the loss. This essentially allows the insurer to recover the funds they paid out, helping to manage overall claim costs and premiums for policyholders.

The other options do not accurately capture the essence of subrogation. The insurer's right to deny a claim concerns claims processing rather than recovery of costs. The ability of a policyholder to choose their own legal representation pertains to legal rights rather than the transfer of rights associated with claims. Lastly, adjusting premiums based on claims is related to underwriting practices and does not reflect the mechanism of subrogation.