Explain the concept of "subrogation" in insurance.

Subrogation is a fundamental principle in the insurance industry that allows an insurer to step into the shoes of the insured after paying a claim. When an insurance company compensates the policyholder for a covered loss, subrogation enables the insurer to seek recovery from any third party that may have caused that loss. This process not only helps the insurer recoup costs associated with the claim but also reinforces the concept that the insured should not benefit from both insurance compensation and a recovery from the party at fault.

For example, if an insured individual is in a car accident caused by another driver, the insured would file a claim with their own insurance company. Once the insurance company pays for the damages, it has the right to pursue the other driver (or their insurance) to recover the amount it paid out. This helps to keep insurance costs down and ensures that the responsible parties are held accountable for their actions.

In contrast, the other concepts presented focus on different aspects of insurance that do not relate to the recovery process. One option describes the renewal process for an insurance policy, another discusses guarantees related to policy lapses, and another refers to premium adjustments based on risk. While these are all important areas within insurance, they do not align with the definition or function