What denotes an individual's economic interest in the safety or preservation of the subject of their insurance?

Insurable interest is a fundamental concept in insurance that refers to an individual’s financial stake in the preservation or safety of the insured item. It means that the policyholder must have a legitimate interest in the subject of the insurance policy, which exists to prevent moral hazard—essentially ensuring that individuals do not take out insurance on items they do not own or have no legitimate connection to.

This requirement helps align the interests of the insured with those of the insurer, encouraging responsible behavior regarding the insured property. For instance, a homeowner has an insurable interest in their house because they would suffer financial loss if the property were damaged or lost.

The other options highlight different aspects or functionalities related to insurance but do not denote an individual's economic interest in the subject of insurance. Subrogation rights pertain to the insurer's ability to recover costs from a third party after paying a claim. Risk transfer involves shifting the financial burden of potential losses from one party to another, typically through an insurance policy. Loss exposure refers to the potential for loss inherent to a particular risk but does not indicate a vested economic interest. Hence, insurable interest clearly captures the essence of having a stake in the subject of insurance, making it the correct choice.