What does the term 'subrogation' mean in insurance?

Subrogation refers to the right of an insurer to pursue a third party that is responsible for a loss after the insurer has paid out a claim to the insured. This legal concept allows the insurance company to "step into the shoes" of the insured and seek reimbursement from the responsible party. By doing so, the insurer can mitigate its losses and potentially reclaim some or all of the amounts paid out in claims. This is an essential component of the insurance process, as it helps keep insurance premiums lower in the long run by allowing insurers to recover costs from those who cause damages.

The other options do not accurately capture the essence of subrogation. The obligation of the insured to report claims focuses on the responsibilities of the policyholder, while the process of determining claim payouts relates to how insurance companies evaluate and settle claims, and a method to calculate premiums deals with the underwriting and pricing of insurance products. These aspects are important in the insurance landscape but do not relate to the subrogation process.