Fixed Assets (FA) are typically classified under the accounting heads (Asset Class) Land, Buildings, Plant & Machinery, Office Equipment, Furniture Fixture & Fittings and Vehicles. Depending upon nature of business new Assets Classes may be added, eg. Software, Computer Hardware for an IT enterprise, as such FA would form substantial part of the Capital Cost of FA.

For the purpose of insurance against fire, flood, earthquake, hurricane, tempest & acts of God peril’s of the fixed assets stated only building, plant and machinery, office equipment, furniture fixture & fittings constitute insurable fixed assets. While land is not insured, vehicles are covered under separate motor vehicle policies. When we say vehicles we understand that these would be mobile like cars, busses, trucks etc. However special note should be made of vehicles which are mobile but restricted to fixed location within the insured premises e.g. forklifts, earth moving equipment like dozers, excavators, fork lifts etc. you need to check whether these are accounted for under asset class such as plant and machinery or vehicles. What you must do is identify such vehicles and treat them separately for insurance under motor vehicle policy customized to cover such machines. The reason to treat them separately is that if they are moved on public road then any accident would not be recoverable under the FIRE policy and the damages and claims to be paid by the insured would have to be borne by the insured, UNLESS these assets are insured under appropriate insurance which permits their movement on public roads and also covers 3rd party liabilities.

Every company is supposed to have a FIXED ASSET register as a statutory compliance requirement under Company’s ACT 1956. The FIXED ASSET register has a prescribed format.

For Insurance purposes the information from the FIXED Asset register that is absolutely necessary is the Asset Description, Use Date ( date on which the asset was capitalized in the books ) , Acquisition Value ( Also commonly referred as Capitalized cost ), location ( where the asset is located ), asset class ( this would represent the classification of the fixed asset under earlier mentioned heads such as land, building, plant and machinery, office equipment, furniture fixture & fittings, vehicles ) & Country of origin (imported or indigenous asset).

Of great importance would also be the unique asset identity number. This may not be available if the assets have not been coded, however if the FIXED asset register is enabled on the ERP of your company then the unique asset id would form the core identity of the Fixed Assets.

Let us examine the relevance of each of these fields of information vis-a-vis Insurance.

Asset Description :

Asset description would give an insight into what the asset is e.g. Boiler, generating set etc. the description if it is brief without going into the specifications could become misleading from insurance perspective. Because if we have more than one boiler and consider the cost of each boiler as Rs. 1.5 crores, 2 crores and 2.5 corores. If the description is mentioned only as boiler repeating 3 times with respective capitalized cost then one has to infer from the costs which boiler out of the 3 entries is in the fixed asset register. The good practice would be to specify the boiler with specifications and manufacturers name. Even better is to have a unique asset id for each asset. With a unique asset id and detailed description as suggested, there is no ambiguity to co-relate the assets in the Fixed asset register against the reality on ground. From an insurance perspective, at the time of pre-insurance it is in the interest of the company to describe the asset in detail for clarity and identification. Imagine when a claim arises, the assessor would refer to the Fixed Asset register to identify the damaged/destroyed assets for verifying the ownership of the asset and other relevant information like capitalized cost and used date. If the description is ambiguous it creates a grey area which the assessor can leverage for a negotiated lesser settlement. As a matter of rule any grey area will always be detrimental to the interests of the claimant company at the time of a claim. Although challenging but what must be done before a claim occurs is to have detailed description of the asset and a one to one correspondence with the fixed asset register and the fixed assets on ground.

Case Study : In one of the claims it was observed that there were 3 identical machines installed at the shop floor, however referring back to the fixed asset register only 1 machine was seen listed therein. The question thus arose whether the machine that got damaged was listed in the fixed asset register or not. On reverse engineering the accounting data, which took considerable time and delayed claim settlement, it was noted that the 3 machines were bought as a lot and thus there was only 1 entry in the FAR. The correct thing would have been to list each machine separately in the FAR carrying a unique identity number. Had this been done, the company’s claim could have been settled instantly as against many man hours spent on figuring out the discrepancy, which caused delay in claim settlement by over 4 months.

Fixed Assets (FA) are typically classified under the accounting heads (Asset Class) Land, Buildings, Plant & Machinery, Office Equipment, Furniture Fixture & Fittings and Vehicles. Depending upon nature of business new Assets Classes may be added, eg. Software, Computer Hardware for an IT enterprise as such FA would form substantial part of the Capital Cost of FA.