Arizona Adjuster Practice Exam

What is the role of subrogation in the insurance process?

1. To distribute policy premiums

2. To recover losses from a third party

3. To enforce policy limits

4. To determine claim eligibility

The correct answer is: To recover losses from a third party

Subrogation is a crucial concept in the insurance process that involves the insurer stepping into the shoes of the insured after a claim has been paid. Essentially, when an insurance company pays a loss to its policyholder, it may pursue recovery of that amount from a third party that is deemed responsible for the loss. This mechanism allows the insurance company to recoup the funds it has disbursed and helps keep insurance costs down for all policyholders by preventing a single entity from bearing the entire financial burden of the loss. Through subrogation, the insurer maintains the right to seek damages directly from the third party, thus preserving the principle that the insured should not profit from an insurance claim, but rather be compensated for their actual loss. This process not only holds third parties accountable but also reinforces the solidarity within the insurance system by dispersing losses across those responsible for causing them. Other options do not accurately describe subrogation. The distribution of policy premiums is related to the financial management of an insurance company rather than the recovery of losses. Enforcing policy limits involves ensuring that paid claims do not exceed the stipulated amounts in insurance policies. Determining claim eligibility deals with assessing whether a claim meets the necessary criteria for payment under the policy, which is distinct from the