What is the main function of 'subrogation' in insurance?

Subrogation is a core principle in the insurance industry that allows insurers to pursue recovery from third parties who are responsible for causing a loss, after they have compensated the insured for that loss. This process helps to ensure that the financial burden of the compensation is ultimately borne by the party at fault, rather than the insurer or the insured.

In practical terms, when an insured individual experiences a loss and files a claim, the insurance company pays out to the insured based on the terms of the policy. Once this payment is made, the insurer gains the right to "step into the shoes" of the insured and seek reimbursement from the party that caused the loss. This not only helps keep insurance costs lower in the long run by allowing the insurer to recover funds paid out, but it also reinforces accountability among those who cause damages.

The other options presented do not align with the main function of subrogation. For example, increasing insurance premiums relates to insurer pricing strategies rather than recovery actions; assessing risk levels pertains to underwriting processes; and covering legal fees for the insured involves a different aspect of policy coverage, not related to the recovery process facilitated by subrogation. The focus of subrogation is specifically on the recovery of costs from responsible parties, making it