In insurance terms, what does 'subrogation' refer to?

Subrogation is a key principle in insurance that allows an insurer to recover costs from a third party responsible for a loss after they have compensated the policyholder. When a policyholder files a claim and receives payment from their insurer for a covered loss, subrogation allows the insurer to step into the shoes of the policyholder to pursue recovery from any parties that may be liable for that loss.

This process ensures that the insurer can recoup the amount they paid to the policyholder, thereby keeping insurance premiums in check and preventing the policyholder from being unjustly enriched by receiving compensation from both the insurer and the liable party. It is an essential aspect of maintaining fairness and accountability in the insurance industry.

In contrast, the other options pertain to different aspects of insurance. Advising on policy changes relates to customer service and policy management, determining premiums involves risk assessment and underwriting, and policy cancellation before the term ends pertains to policy maintenance and regulatory compliance. Each of these choices reflects important insurance concepts but does not capture the specific legal mechanism of subrogation.