What does subrogation allow an insurer to do?

Subrogation allows an insurer to seek recovery from a responsible third party after paying a claim to the insured. This process ensures that the insurer can recoup some or all of the costs associated with a claim from the party that is ultimately liable for the loss. For example, if a policyholder suffers damages due to the negligence of another party, the insurance company can pay the claim to the policyholder and then pursue the negligent party for reimbursement. This mechanism helps keep insurance costs manageable and discourages negligent behavior by holding the responsible party financially accountable.

The other choices relate to different aspects of insurance and do not accurately represent the purpose or function of subrogation. Transferring ownership of a policy, amending policy terms arbitrarily, or increasing premium rates are unrelated to the insurer's right to recover funds from a third party after a claim has been paid. Thus, the correct understanding of subrogation is fundamental in understanding how insurers manage risks and recover losses.