Which term refers to the right of an insurer to pursue a third party after a loss has been paid?

The term that refers to the right of an insurer to pursue a third party after a loss has been paid is subrogation. This process occurs when an insurance company, after compensating a policyholder for a loss, takes on the policyholder's rights to seek reimbursement from the party that caused the loss. Subrogation helps insurers recover the amount they paid to the insured, which ultimately keeps insurance premiums more affordable by preventing them from bearing the full cost of losses caused by others.

This mechanism is fundamental in insurance because it discourages insured parties from seeking compensation from their own insurer while simultaneously pursuing claims against a negligent third party. It also aligns with the principle of indemnity, which seeks to restore the insured to their financial position before the loss without allowing them to profit from it.

Understanding subrogation is crucial for anyone in the insurance industry, as it promotes fair practices and helps maintain the financial health of insurance providers.