What principle aims to restore the insured to their pre-loss economic condition?

The principle that aims to restore the insured to their pre-loss economic condition is indemnity. This principle is foundational in insurance, as it ensures that the insured receives compensation that is equal to the loss they have suffered, without allowing them to profit from the situation. Indemnity prevents the insured from receiving more than the actual loss, thus maintaining financial equity.

In practice, this means that if a policyholder experiences a loss covered by their insurance policy, the insurer will evaluate the loss and provide compensation equivalent to the value of the loss, allowing the insured to recover without any financial windfall. For example, if a homeowner's property is damaged and they incur costs for repairs, indemnity would ensure that their payout covers those repair costs, allowing them to return to their previous financial state.

Other concepts listed do not primarily focus on restoring the insured's financial condition. Subrogation pertains to the insurer's right to pursue a third party responsible for causing a loss after compensating the insured. Reinsurance involves insurers purchasing insurance to protect themselves from large losses, effectively spreading risk rather than addressing individual insureds' financial restoration. Risk assessment refers to the evaluation of risk factors to determine premium pricing and coverage, not directly related to post-loss economic restoration.