What is the main distinction between indemnity and subrogation?

The main distinction between indemnity and subrogation lies in their roles within the insurance process. Indemnity refers to the principle where an insured party is compensated for their loss, ensuring that they are restored to the same financial position they were in before the loss occurred, but without gaining a profit from that loss. This means that indemnity is about making whole again, not about benefiting financially.

On the other hand, subrogation is the process that occurs after indemnity has been paid to the insured. When the insurer compensates the insured for their loss, it then gains the right to pursue recovery from any third party that may be responsible for that loss. This means the insurer steps into the shoes of the insured to seek reimbursement, which helps the insurer recoup their costs and keeps insurance premiums in check for all policyholders.

Understanding this distinction is crucial in grasping how insurance claims are processed and how risks are managed in property and casualty insurance.