What does 'subrogation' mean in insurance terminology?

Subrogation in insurance refers to the process where an insurance company, after paying a claim to its policyholder, seeks reimbursement from a third party that may have been responsible for the loss. This principle allows insurers to recover the costs they have incurred in settling claims, essentially stepping into the shoes of the insured. For example, if a driver is involved in an accident caused by another driver, the insurance company of the injured driver can pay for the repairs and then pursue the at-fault driver's insurance for reimbursement. This process helps keep insurance premiums lower by ensuring that insurers can recover the losses they have paid.

The other options presented, while related to various aspects of insurance, do not accurately reflect the definition of subrogation. One option discusses claim settlement processes, another speaks about risk classification evaluations, and the last mentions the sharing of liabilities between insurers, which are distinct concepts within insurance practice.