What does the principle of subrogation allow an insurer to do?

The principle of subrogation allows an insurer to seek damages from a third party after paying a claim. This process occurs when an insurance company compensates a policyholder for a loss and subsequently claims the amount it paid from the party responsible for that loss. This principle is crucial because it helps to ensure that the party at fault for the damage is held accountable for their actions, while preventing the insured from receiving a double recovery for their loss (once from the insurer and again from the responsible party).

In the context of insurance, subrogation serves to keep insurance premiums in check and fosters a sense of fairness in the claims process. When insurers can recover funds from at-fault parties, they can maintain healthier financial reserves, which ultimately benefits policyholders by keeping premiums lower.

The other options do not accurately represent the principle of subrogation. Denying a claim due to insured fraud, calculating property loss based on replacement value, and using units of measure for insurance rates are distinctly different functions that do not relate to the transfer of rights and responsibilities between the insured and the insurer as highlighted in subrogation.