What does subrogation allow an insurer to do?

Subrogation is a key principle in the insurance industry that allows an insurer to step into the shoes of the insured after a loss has been paid. This process enables the insurance company to seek reimbursement from a third party that is responsible for the loss.

When an insurer pays a claim to the policyholder for damages caused by another person or entity, subrogation gives the insurer the right to pursue the at-fault party for recovery of those costs. This ensures that the insurance company can mitigate its losses and the costs of claims can ultimately be borne by the party responsible for the damage, rather than impacting the insurer's overall finances or leading to higher premiums for other customers.

The other options do not accurately represent the practice of subrogation. Claiming benefits directly from the policyholder, changing policy terms unilaterally, or offering higher premiums are not functions of the subrogation process. Instead, subrogation serves as a mechanism to hold accountable the party that caused the damages, thereby maintaining a fair system in which the insurer can recoup its payouts.