What does "subrogation" allow an insurer to do?

Subrogation is a crucial concept in insurance that allows an insurer to pursue recovery from a third party that is responsible for a loss incurred by the insured. This process occurs after the insurer has paid a claim to the policyholder. By exercising its right of subrogation, the insurer can seek reimbursement from the third party that caused the damage or loss, effectively stepping into the shoes of the insured to claim compensation. This helps the insurer recover some or all of the costs associated with the claim, which can ultimately help keep premium costs down for all policyholders.

The other options do not accurately define the term or its function in the insurance process. Canceling a policy without notice is more related to policy management rules and not subrogation. Changing the terms of a policy after a claim pertains to underwriting practices, which are distinct from subrogation actions. Covering losses not specified in the policy would contradict the principle of insurance contracts, which delineate covered risks; thus, subrogation does not apply in this context. Therefore, the ability of the insurer to pursue recovery from a responsible third party exemplifies the primary function of subrogation in the insurance industry.