APIR Foundations of Insurance Regulation Practice Test 2026 - Free Insurance Regulation Practice Questions and Study Guide

Subrogation is a key principle in insurance that involves the transfer of rights to collect damages to the insurer after a claim has been paid out. When an insurer compensates a policyholder for a loss, subrogation allows the insurer to pursue a third party that may have caused the loss to recover the amount it paid. This process helps to keep insurance costs down by allowing the insurer to recover funds that it would otherwise bear the expense of. It aligns the interests of the insurer and the insured, as the insured receives compensation for their loss, and the insurer can seek restitution from the responsible party.

The other choices do not accurately describe subrogation. The option regarding insuring multiple parties refers to concepts like coinsurance or multiple coverage, which are unrelated to subrogation. The measure of an insurer's financial strength pertains to their solvency and capacity to pay claims, which is not connected to the notion of subrogation. Lastly, the assessment of risk before insuring relates to underwriting processes, distinct from the post-claim recovery actions described by subrogation.