What does the term "subrogation" refer to in auto insurance claims?

The term "subrogation" refers to the insurance company's right to recover costs from the party at fault after it has indemnified the insured for their losses. This process allows the insurer to step into the shoes of the policyholder and pursue recovery from the responsible party. When an insured individual suffers a loss due to the negligence of another, their insurance will typically cover the loss and pay the insured. However, the insurance company has the legal right to seek reimbursement from the party responsible for the damage, ensuring they can recover funds and maintain the financial balance of their operations.

This process is crucial for keeping insurance premiums reasonable because it allows insurance companies to recover some of the costs associated with claims, ultimately helping to control rates for all policyholders. The other options do not accurately describe subrogation, with some discussing aspects like filing claims with multiple insurers or calculating premiums, which are unrelated to the definition of subrogation.