What is subrogation in the context of insurance?

Subrogation in the context of insurance refers to the transfer of rights from the insured to the insurer. This process occurs after the insurer pays a claim to the insured for a loss suffered. Essentially, when an insurance company compensates the insured, it assumes the right to pursue recovery of that amount from any responsible third party. This means that the insurer can step into the shoes of the insured to seek reimbursement from those at fault for the damages.

By doing so, subrogation helps to prevent the insured from receiving a double recovery for the same loss, as they are compensated by their insurer while the insurer has the ability to recover from third parties. This principle is crucial for maintaining fairness in the insurance system and helps control premiums by allowing insurers to recoup losses from responsible parties.

The other options, although relevant to insurance practices, do not correctly define subrogation. They refer to different concepts such as coverage enhancement, insurer obligations, and disclosure requirements, which do not involve the transfer of rights that characterizes subrogation.