What does "subrogation" in insurance refer to?

Subrogation in insurance refers specifically to the right of an insurer to step into the shoes of the insured after a loss has occurred and pursue recovery from a third party responsible for that loss. Essentially, when an insurance company pays a claim to its policyholder, it gains the legal rights to recover that money from whoever caused the damage or loss. This process helps to keep insurance costs lower, as it allows insurers to recoup expenses incurred from settling claims.

Through subrogation, insurance companies can take legal action against the party responsible for causing the harm. This not only protects the interests of the insurer but also aims to deter negligent behaviors by holding the responsible parties accountable for their actions. For example, if a driver is involved in an accident caused by another driver, the insurance company of the injured party may pay for damages and then proceed to seek reimbursement from the at-fault party's insurance.

In contrast, the other concepts listed—cancelling a policy, merely paying claims, or adjusting claims—do not accurately represent the function of subrogation. They pertain to different aspects of the insurance process, emphasizing various administrative and operational tasks of insurance companies.