What does the term 'subrogation' refer to in the context of insurance?

The term 'subrogation' in the context of insurance refers to the legal right of an insurer to pursue a third party that caused an insurance loss to the insured. When an insurance company pays for a loss suffered by its policyholder, it may have the right to take over the policyholder's right to recover damages from responsible parties. This process allows the insurer to recoup some or all of the costs it incurred while covering the insured's loss.

For example, if an individual is involved in a car accident where another driver is at fault, and their own insurance company covers their expenses, the insurer may seek reimbursement from the at-fault driver’s insurance. This process helps keep premiums lower for policyholders since it mitigates the financial impact on the insurer and allows them to recover expenses when possible.

The other choices do not accurately describe what subrogation means in insurance. 'A type of insurance premium' relates to the cost a policyholder pays for coverage rather than a legal right. 'The payment structure of services' pertains to how costs are managed in healthcare or insurance contexts but does not encompass the concept of subrogation. Likewise, 'a cost-sharing arrangement' involves how expenses are divided between parties, which is not the focus