In the context of auto insurance, what does the term "subrogation" refer to?

Subrogation in the context of auto insurance refers to the transfer of rights to the insurer. This process occurs when an insurance company pays a claim to an insured individual and then seeks to recover the amount paid from the responsible third party or their insurer. Essentially, after the insurer compensates the policyholder for their loss, it assumes the policyholder's right to pursue recovery from the party that caused the damage.

This process helps to keep insurance costs down because the insurer can reclaim some of the funds it has disbursed by holding the responsible party accountable. Understanding subrogation is crucial for both insurers and policyholders because it illustrates how insurance companies manage risk and loss, ensuring that the party responsible for an accident ultimately bears the financial burden. This concept is separate from the methods of evaluating damage, determining liability, or resolving claims disputes, which are distinct processes in the claims handling cycle.