What is the purpose of subrogation in insurance?

Subrogation is a key principle in insurance that allows insurers to recover costs that they have paid to their policyholders from a third party that is responsible for the loss. When an insurer compensates a policyholder for a covered loss, subrogation allows the insurer to pursue recovery from any party that caused the damage or injury. This process serves to keep insurance costs down overall, as it enables insurers to recoup their expenses, which can ultimately help in controlling premium rates for all policyholders.

The function of subrogation promotes fairness within the insurance system by ensuring that the party at fault ultimately bears the financial burden of the loss, rather than the insurer or the insured. This principle also encourages responsible behavior by those who might otherwise act negligently, knowing that repercussions will follow if their actions result in claims.

The other options do not align with the primary aim of subrogation. Adjusting claims based on policyholder actions relates to claim management and assessing liability. Preventing fraud in insurance claims is a broader concern relating to the integrity of the claims process itself, rather than the recovery of costs post-claim. Lastly, increasing premiums for high-risk individuals pertains to underwriting practices and is not a direct result or purpose of subrogation.