What does "subrogation" in insurance mean?

Subrogation refers to the right of an insurer to pursue a third party for cost recovery after paying a claim to its policyholder. This legal process allows the insurer to step into the shoes of the insured and seek reimbursement from the party responsible for the loss or damage. Essentially, when an insurer compensates a policyholder for a loss caused by another party, subrogation enables the insurer to reclaim those costs from the responsible party, thus preventing the insured from receiving a double recovery for their loss.

For example, if a driver is involved in an accident that is another driver's fault, the injured driver’s insurance may cover their damages initially. Later, that insurer can pursue the at-fault driver for recovery of what they paid to their insured. This mechanism helps keep insurance rates more stable by allowing insurers to recover their expenses and ensures that the at-fault parties are held accountable for their actions.

In contrast, the other options describe concepts that do not align with the true definition of subrogation. Lowering insurance premiums or allowing customers to choose their repair services do not pertain to the legal right of recovery. Likewise, the procedure for adding new coverages relates more to policy management and updates rather than the recovery of costs after claims.