In other words, subrogation is the substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third-party wrongdoer for a loss paid by the insurer.
1. To prevent Gambling: Insurable interest is necessary to prevent insurance from being used as a form of gambling.
If there is no insurable interest, people could potentially take out insurance on something they don’t have a financial stake in and hope that it gets damaged or destroyed, so they can collect the insurance payout.
For example, imagine someone who doesn’t own a car taking out an insurance policy on a friend’s car.
Since he has no financial interest in the car, he would hope that the car gets involved in an accident so that he can collect the insurance payout.
This would be similar to gambling, as he is essentially betting on something happening so that he can gain from it.
However, with the presence of insurable interest, such a scenario is not possible.