What is the purpose of subrogation in insurance?

Subrogation in insurance serves the crucial purpose of allowing an insurer to step into the shoes of the insured after a loss has occurred. When an insurance company pays out a claim to the insured for a covered loss, subrogation enables the insurer to pursue recovery of the amount paid from the party that was actually responsible for the loss. This process helps manage the overall costs of insurance, ensuring that the insurer can recoup some of the expenses, which in turn can help keep premiums more affordable for all policyholders.

This principle is foundational to how insurance operates, aligning with the idea that the insured should not profit from a loss, as any potential financial gain would create moral hazard. Subrogation also encourages accountability by holding the party at fault for the loss financially responsible for their actions.

In contrast, the other options do not accurately reflect the function of subrogation. Relinquishing property and managing multiple insurance policies relate more to claims and coverage administration, while broadening coverage without additional premium pertains to policy terms rather than the recovery of funds after a claim.