Overview
The Designation Clause in Fire Insurance—also known as the designation of property clause—ensures that the insurer accepts the way insured property is listed in the insured’s books for claim purposes. In other words, whatever property head (e.g. Building, Plant & Machinery, Electrical Installations, Wiring, Furniture) under which an asset is recorded in the insured’s accounts, the insurer agrees to treat it as the designated coverage category at claim time. This clause provides flexibility and reduces risk of disputes over classification at the time of loss.
Key Benefits
- Alignment with the Insured’s Records
If your books classify an asset under ‘Plant & Machinery’ but your policy lists it under ‘Electrical Installation’, the designation clause ensures coverage follows your bookkeeping—not just the policy schedule.
- Reduced Claim Disputes
Inaccurate or rigid headings in the policy may lead to claim denials. Using the designation clause prevents misclassification, mitigating the risk of claim disputes.
- Flexibility for Complex Assets
Especially useful in large commercial or manufacturing setups where assets span multiple categories but might be grouped differently in insurer templates—a clause like this lets you rely on your own designations.
Considerations
- Dependent on Accurate Records
Benefits depend entirely on the insured maintaining clear, accurate asset registers—ambiguities or mislabelling can backfire at claim time.
- Optional Activation by Insured
The insured must explicitly invoke the designation clause if needed. Otherwise, insurer terms and policy headings apply by default.
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.
FAQs
What is the designation clause in fire insurance?
It is a policy provision whereby the insurer agrees to honor property classification as per the insured’s bookkeeping, allowing assets to be covered under the headings used in the insured’s records, even if they differ from the policy schedule.
Why is a designation clause important in fire insurance claims?
Because misclassification or policy template limits may lead to claim rejection or limited indemnity. This clause aligns asset coverage to the insured’s records, reducing disputes and promoting smoother settlement.
Does the insurer automatically apply the designation clause?
No—typically, the insured must choose to invoke the clause. If not invoked, claim settlement follows the standard policy schedule and headings.
Can the designation clause ever work against the policyholder?
It may be disadvantageous if the insured’s asset records are outdated, misclassified, or inconsistent. Any ambiguity in books can lead to exposure or undervaluation during claims.
In which types of policies is the designation clause most useful?
It’s particularly helpful in industrial, manufacturing, and complex commercial insurance policies, where assets often span multiple classification headings and insurer templates may be rigid.
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.
