In the context of insurance claims, what does the term 'subrogation' mean?

Subrogation is a fundamental concept in insurance that allows an insurer to step into the shoes of the insured after a loss has been paid. This process enables the insurer to pursue recovery from a third party that is deemed responsible for the loss. For instance, if a driver is involved in an accident that was caused by another party, the insured can file a claim with their own insurance company to receive compensation for their damages. Once the insurer pays the claim, it can then seek reimbursement from the at-fault driver or their insurance company. This both helps to keep premiums lower for the insured and holds the responsible party accountable for their actions.

The other options do not accurately describe subrogation. Adjusting premium rates, calculating total claims paid, or renewing a policy all pertain to different aspects of insurance operations but do not involve the transfer of rights to recover costs after a claim has been paid. Thus, the correct understanding of subrogation reflects its role in ensuring fairness and accountability in the insurance system.