What is the purpose of subrogation in insurance?

Subrogation is a critical principle in insurance that allows an insurer to step into the shoes of the insured after a claim has been paid, in order to pursue recovery from a third party that caused the loss. The purpose of this process is for the insurer to recover the amount it has paid to the insured from the negligent party responsible for the damage or injury.

When an insured experiences a loss and the insurer compensates them, the insurer gains the right to seek reimbursement from the party that was at fault. This mechanism is beneficial because it helps keep insurance premiums in check by allowing insurers to recover costs associated with claims. It also ensures that the party that caused the loss is held financially responsible.

The other options do not accurately describe the purpose of subrogation. It does not prevent the insured from receiving payments; rather, it supports the claims process by allowing recovery from third parties. Additionally, subrogation does not relate to adding coverage for personal liability, nor does it typically involve direct negotiations between policyholders and third parties, as this could complicate claims and recovery processes.