Final answer:
Subrogation is the process where an insurer recovers costs from the responsible party after paying out a claim to the insured, which is different from coinsurance. Coinsurance is a cost-sharing method where the policyholder pays a set percentage of a loss, and the insurer pays the remainder.
Step-by-step explanation:
When you file a claim, your insurer can try to recover costs from the person responsible for your injury or property damage. This is known as subrogation. The concept you're referring to is not coinsurance, which is a different mechanism of cost sharing where an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost.
For example, in a scenario involving coinsurance, if your home had fire damage estimated at $100,000 and your insurance policy has a coinsurance clause of 80%, the insurance would cover $80,000 and you would be responsible for paying the remaining $20,000. This method of cost sharing is designed to reduce moral hazard by ensuring the policyholder is financially implicated in the loss and therefore, is incentivized to mitigate risks more effectively.
Remember, coinsurance is a part of your insurance contract whereby you share a portion of the risk with your insurer, while subrogation involves your insurer seeking reimbursement from the party at fault for the costs they have covered on your behalf.