Which of the following statements is true regarding subrogation?

Subrogation is a legal principle in the insurance industry that allows an insurer to pursue a third party to recover the costs it has incurred after making a payout to an insured party. When an insurer compensates a policyholder for a loss, the insurer gains the right to seek reimbursement from the party that is actually responsible for the loss. This right to pursue claims is crucial for keeping insurance costs manageable, as it helps insurers recoup some of their losses.

In this context, the first statement correctly identifies that subrogation enables insurers to take legal action against a responsible third party after they have made payments to their insured. This process not only helps insurers reduce their financial losses but also helps to ensure that the party at fault is held accountable for their actions.

The other statements describe misconceptions about subrogation. It does not prevent claim payments; rather, it occurs after a payment is made. It is also not limited to auto insurance; subrogation applies across various types of insurance policies, including homeowners, liability, and health insurance. Lastly, subrogation is not related to fraud; it is a legitimate practice under the law designed to protect both insurers and insureds.