Subrogation in Insurance

 

Subrogation is a concept that applies to insurance policies. It is the legal principle that allows the insurance company to recover the amount paid as compensation. With the help of this condition the insurance company can recover the loss from the person responsible for the insured loss. Subrogation applies to fire, marine and non-life policies. We will look into the details of the subrogation aspect of insurance policies in this article.

Understanding subrogation

Subrogation means one person pursuing the rights of another. Here it is the insurer who stands in the place of the insured to recover the damages.

The process of a settlement under an insurance policy is easier for the insured as the recovery aspects are taken over by the insurance company and claim is quickly settled.

Insurance company will have the same rights and legal standing as the policyholder when seeking compensation for losses.

Insurance company takes the financial burden of the insured as the result of an injury or accident and claims damages from the opposite party or insurance company.

How subrogation works

First the claim is paid and then reimbursement is sought from the other party, or their insurance company. The insured receives his claim proceeds quickly, after this the insured does not have the right to file a claim with the opposite party insurer to receive the compensation for damage.

The insurance company then pursues a subrogation claim against the party at fault for the loss.

Once claim is paid to the insured, insured has no further rights on the recovery amount that may be paid by the opposite party.

Let us look at his through an example. Goods were sent by the insured from his premises to another place, by a van for sale. The van was damaged when it was hit by a lorry. The insured claimed the damage from those who had damaged the van. The insured also informed his insurance company about the damage.

The insurance company paid his claim and took over the recovery rights from the insured. Subsequently the insurance company followed up with the opposite party in the claim for damages instead of the insured. This is due to the principle of subrogation.

 

Benefits of subrogation

The insurance company can minimize their  loss ratios and improve the profits per policy.

If the insurance company is able to recover from the opposite party on behalf of the insured the compensation paid by the insurer is reduced to that extent and the portfolio becomes profitable.

The insurance companies of the two parties come to an understanding of the recovery amount. It benefits the insured as it reduces his loss ratio on the policy and keeps his insurance rates low.

This also helps in optimum use of policy provisions as the proceeds of subrogation that are realized from the opposite party are added to the books of account of the insurer. This goes a long way in improving the profitability of the insurer

Waiver of subrogation

This is another provision where the policyholder waives the subrogation rights of the insurer. Usually this is not agreed by the insurer as it is waiving a policy condition.

However, in exceptional cases and on specific request from the insured subrogation rights may be waived by the insurer on payment of additional premium.

Insured may prefer such a waiver to avoid court cases which go on for a long time. Waiver of subrogation is preferred where the project period is itself long such as 18 months. Any loss or damage during the project period can paralyze business activity and project completion, due to delayed claim proceeds. Since subrogation is a lengthy process, the insured may seek such a waiver.

 

Does subrogation apply to life insurance?

The principle of subrogation does not apply to life and personal accident policies because these policies are not policies of indemnity. The doctrine applies only to marine, fire and other non-life policies.

Personal accident and life policies are not contracts of indemnity and subrogation applies to properties only.

 

Insurance policies are legal contracts and are governed by the principles of insurance. It is important to go through the conditions of the policy for a better understanding of the cover offered.

We at Zen insurance assist in choosing the right Insurance cover to suit your needs. Please contact us for assistance.

 

 Disclaimer:   

 Zen Insurance is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.