What is the primary purpose of subrogation in insurance?

Subrogation in insurance is fundamentally the process through which an insurance company seeks to recover the amount it has paid to its insured from a third party that is responsible for the loss. When an insured suffers a loss and files a claim, the insurer compensates the insured based on the terms of the policy. Subsequently, if it is determined that another party was negligent and caused the loss, the insurer has the right to pursue that party to recoup the amount paid out to the insured.

This mechanism serves several important purposes: it prevents the insured from receiving a double recovery for a single loss since the insurer will only pay the insured what they are owed based on their policy, and it helps keep insurance premiums more manageable over time, as the insurer can recover losses from responsible third parties rather than always absorbing these costs. By holding negligent parties accountable, subrogation also promotes fairness in the insurance system and encourages responsible behavior.

The other options do not accurately reflect the primary function of subrogation. While compensation to the insured, increasing premiums, and enhancing customer service are all aspects of insurance, they do not capture the essence of what subrogation is intended to achieve within the insurance process.