What is subrogation in the context of insurance?

Subrogation is a key concept in insurance that refers to the process by which an insurance company seeks reimbursement from the party responsible for a loss after it has paid a claim to its policyholder. This mechanism allows insurers to recover some or all of the money they have paid out on a claim when another party is at fault for the damage or injury incurred.

For instance, if an insured individual is involved in a car accident where another driver is at fault, the insured's insurance company may pay for the damages to the insured's vehicle. After settling the claim, the insurer can then pursue the at-fault driver or that driver's insurance company to recover the costs of the claim. This process helps to hold the responsible party accountable and reduces overall costs for the insurer, which can ultimately benefit all policyholders by keeping insurance premiums lower.

This understanding of subrogation is critical for those preparing for the Hawaii Insurance Adjuster License Practice Exam, as it highlights the financial mechanisms in place within the insurance industry and the importance of accountability when accidents occur.