What is the concept of subrogation in insurance?

Subrogation in insurance is the process that allows an insurer to pursue a third party that caused an insurance loss to the insured. Essentially, it is the transfer of rights from the insured to the insurer, enabling the insurer to recover the amount paid to the insured for a loss directly from the party responsible for the damage. This helps to ensure that the responsible party is held accountable for their actions and prevents the insured from being unjustly enriched by receiving a payout from their insurance policy while also retaining the right to seek recovery from the party at fault.

The concept is fundamental to the operation of insurance as it helps to maintain fairness in the system by allowing insurers to recoup costs and ultimately keep premiums in check. Through subrogation, insurers can maintain their financial health while providing necessary compensation to policyholders.

The other options do not accurately represent the principle of subrogation. Evaluating policyholder claims is part of the claims handling process, not directly related to subrogation. Increasing commissions for agents is a separate concern related to sales and marketing, while terminating an insurance policy refers to ending the coverage, which does not pertain to the transfer of rights or recovery of losses.