What does subrogation allow the insurer to do after a loss payment?

Subrogation is a legal principle that allows an insurer to assume the rights of its policyholder to pursue recovery from a third party after the insurer has compensated the insured for a loss. When the insurer pays for a claim, it effectively steps into the shoes of the policyholder, gaining the right to seek restitution from any responsible party that caused the damage or loss. This process helps the insurer recoup costs associated with the claim, ensuring that the financial burden of the loss does not fall entirely on them, especially if the loss was due to another party's negligence or wrongdoing.

This mechanism benefits both the insurer and the insured: the insurer can recover its losses, while the insured does not have to worry about pursuing legal action themselves. Understanding subrogation is vital because it illustrates the collaborative nature of risk management in insurance, with insurers leveraging their rights to mitigate losses effectively.