What does subrogation allow an insurer to do after paying a loss?

Subrogation is a fundamental concept in insurance that allows an insurer to step into the shoes of the insured after they have paid a loss. By doing so, the insurer can pursue recovery from another party who may be responsible for the loss, effectively reclaiming some or all of the costs associated with the claim. This process helps insurers mitigate their financial risk and maintains the balance in the insurance system by allowing them to recover funds when a third party is at fault.

With subrogation, the insurer has the right to take legal action against the party responsible for the loss without needing the insured's permission, although they generally keep the insured informed. This recovery process not only serves the interests of the insurer but also helps keep insurance premiums more stable, as the costs of claims can be offset by successful recoveries.

The other options focus on different aspects of insurance management and policyholder relationship that do not align with the purpose of subrogation. Increasing premiums relates to the overall risk assessment and claims experience, canceling a policy pertains to insurer rights in specific circumstances, and modifying policy terms involves negotiations rather than recovery actions after a loss.