Final answer:
The right of recovery against a negligent third party can be transferred to an insurer under the subrogation clause, allowing the insurer to seek repayment. Insurance protects against financial loss, with methods like deductibles and co-payments in place to reduce moral hazard.
Step-by-step explanation:
The insured's right of recovery against a negligent third party may be transferred to the insurer under the subrogation clause. Subrogation is a method whereby, after the insurer has paid out the policy holder for a loss, the insurer acquires the rights to pursue recovery from the third party responsible for the loss. This process helps insurers to recoup the amount paid to the insured and also helps in keeping insurance premiums down by holding the responsible party accountable.
Insurance serves as a method to protect individuals from financial loss by having policy holders make regular payments to an insurance firm, which then compensates a member who suffers financial damage from a covered event. Methods like deductibles, co-payments, and coinsurance are utilized to reduce moral hazard, which is the risk of people not guarding against an event occurring when they are insured against it. By requiring the insured to share some of the costs, it encourages them to take preventive measures and be more responsible.