Which term best describes the ability of an insurance company to reclaim costs from third parties?

The ability of an insurance company to reclaim costs from third parties is best described by the term subrogation. Subrogation is a key principle in insurance that allows an insurer to pursue a third party that caused a loss to the insured. This process is essential because it helps to avoid unnecessary costs for the insurance company, as they can recover some or all of the expenses they initially paid to the insured for their claim.

For instance, if an insured person suffers damages due to someone else's negligence, the insurance company will first compensate the insured for those damages. Afterward, through subrogation, the insurer can seek reimbursement from the party that was responsible for the loss, effectively transferring the right to claim from the insured to the insurer.

This term plays a crucial role in maintaining the balance in the insurance market and helps keep premiums lower by ensuring that wrongful parties bear the costs of their actions. Other terms such as co-insurance, underwriting, and reinsurance relate to different aspects of the insurance industry but do not specifically describe this ability to reclaim costs from a third party.