The designation of property is the most important clause in a fire insurance policy. The fire insurance policy defines the designation of property clause. Insurers agree to accept the designation entered in the insured’s books to determine coverage.
After accepting this clause, insurers will accept item classification and sum insured as per the policyholder’s books. Therefore, it provides greater flexibility to the policyholder since the insurer now recognizes the standard approach for bookkeeping.
The ‘designation of property clause’ in fire insurance outlines how insurers determine insured property. When necessary, insurers accept the property’s designation entered in the insured’s books or fixed asset register. This clause provides flexibility to the policyholder by allowing them to use their own established classification system for determining coverage. It ensures that the insurer recognizes and accepts the policyholder’s chosen method of categorizing their assets, which can streamline the claims process and avoid disputes regarding the proper classification of insured properties.
Additional Read: What is the reinstatement clause in fire insurance?
Let us explain the designation of the property clause with an example to make things more clear.
Below is the fixed asset register (FAR) of a client –
| Category | Sum Insured |
| Building | 100000000 |
| Leasehold improvements | 25000000 |
| Furniture & Fixture | 40000000 |
| Plant & Machinery | 50000000 |
| Stocks | 10000000 |
In the above list, if the client has included all electronic equipment under Plant & Machinery, the insurer will have to abide by the classification done by the client at the time of settling the claim. Provided that the asset is covered in the policy with the appropriate sum insured value, insurers cannot deny the claim on the basis of incorrect classification of the asset.
In conclusion, the designation clause in fire insurance allows insurers to accept the classification entered in the insured’s books, ensuring smoother claims processing. Similarly, the Reinstatement clause reinstates coverage after a loss, providing essential protection to policyholders.
About The Author
Shivani
MBA Insurance and Risk
She has a passion for property insurance and a wealth of experience in the field, Shivani has been a valuable contributor to SecureNow for the past six years. As a seasoned writer, they specialize in crafting insightful articles and engaging blogs that educate and inform readers about the intricacies of property insurance. She brings a unique blend of expertise and practical knowledge to their writing, drawing from her extensive background in the insurance industry. Having worked in various capacities within the sector, she deeply understands the challenges and opportunities facing property owners and insurers alike.
