What does the term “subrogation” refer to in insurance?

The term “subrogation” refers specifically to the insurer's right to seek reimbursement from a third party after it has paid a claim to its policyholder. This process allows the insurance company to step into the shoes of the insured party following a loss and pursue any legal claims against those who may have been responsible for that loss. By doing so, the insurer can recover some or all of the money it has paid out in claims, helping to maintain the financial stability of the insurance system.

This concept is crucial because it helps prevent the policyholder from receiving "double recovery," where they would get compensation from both the insurance company and a third party. Subrogation ultimately reflects the principle of indemnity, ensuring that the insured is restored to their financial position prior to the loss without making a profit from their insurance claim.

The other choices address different aspects of insurance but do not capture the essence of subrogation. For instance, the process of securing a policyholder's rights pertains more to legal protections rather than the recovery process post-claim. The obligation of an insurer to honor claims is a fundamental duty of the insurance provider, while the method of calculating premiums relates to underwriting practices, which are not connected to the principle of subrogation.