What function does the principle of subrogation serve for insurers?

The principle of subrogation essentially allows insurers to step into the shoes of the insured after compensation for a loss has been paid. When an insurer pays out a claim to the policyholder for damages or losses incurred, subrogation enables the insurer to pursue recovery of that amount from a third party that may have caused the loss or damage.

This principle serves several important functions within the insurance framework. Firstly, it helps insurance companies manage their risks and keeps premiums at a reasonable level. By allowing insurers to recover costs from liable third parties, it prevents the insured from receiving a windfall or double compensation—once from their insurer and again from the party responsible for the loss.

In doing so, subrogation maintains the integrity of the insurance contract and the overall insurance market, promoting fairness and reducing the potential for abuse of the system. This is why understanding subrogation is fundamental for insurance professionals, as it governs the relationship between insurers, insured individuals, and the parties responsible for damages.