What does subrogation in insurance allow an insurer to do?

Subrogation in insurance is a legal principle that allows an insurer to step into the shoes of the insured after a claim has been paid. This enables the insurer to pursue a third party who may have caused or contributed to the loss, seeking recovery of the amount paid out in claims. The underlying purpose of subrogation is to ensure that the party responsible for the loss ultimately bears the financial burden, rather than the insurer or the insured.

When an insurer pays a claim, they can investigate the circumstances of the incident to identify any third parties that may hold liability. By doing this, the insurer can recoup the costs associated with the loss, which helps to keep overall insurance costs down for all policyholders. This process not only reinforces accountability but also supports the insurer's financial stability.

The other options, while related to insurance, do not accurately define the function of subrogation. Adjusting policy premiums based on claims history pertains to underwriting practices, not subrogation. Increasing coverage limits for future losses involves policy terms and agreements, rather than recovery from third parties. Lastly, negotiating with policyholders for better rates involves the marketing aspect of insurance rather than the legal recovery process that subrogation represents.