IC-76 - Fire and Special Perils Insurance
What IC-76 tests
IC-76 is the Insurance Institute of India professional paper on Fire and Special Perils insurance. Questions target the SFSP policy wording, the perils it covers, its exclusions and conditions, the three methods of fixing the sum insured, the operation of the average clause, the claims process from intimation to settlement, and the principles underpinning the cover - insurable interest, indemnity, utmost good faith, proximate cause, subrogation and contribution.
SFSP: perils, exclusions, conditions
The Standard Fire and Special Perils Policy covers fire, lightning, explosion, riot, strike and malicious damage, storm, tempest, flood and inundation, subsidence and landslide, missile testing, impact damage by rail, road, aircraft or animals, and bursting or overflowing of water tanks and pipes. Standard exclusions: war and nuclear risks, wilful acts, spontaneous combustion and own fermentation, and damage by electrical short-circuit - but if fire ensues, the ensuing fire damage is payable. Standard conditions cover alteration, removal of debris, salvage, subrogation and contribution.
Sum insured and claims
Insurers issue on indemnity (market value less depreciation), reinstatement value, or agreed value. Claims flow: immediate intimation, surveyor appointment, documents (claim form, fire brigade report, stock and purchase records), assessment, salvage disposal, then settlement or repudiation. The average clause is the key calculation: Claim = Loss × Sum Insured ÷ Value at Risk.
Worked example
Stock valued at ₹25 lakh is insured for ₹20 lakh and a fire causes a ₹5 lakh loss. Claim = ₹5 lakh × 20/25 = ₹4 lakh. The remaining ₹1 lakh is the underinsurance penalty borne by the insured, and the policy excess is then deducted from the ₹4 lakh.
Mark-losing traps
- Admitting short-circuit repair costs where no fire followed.
- Forgetting to credit salvage and subrogation recoveries.
- Applying average to an agreed-value policy.
- Confusing the policy excess with the average-clause deduction, or omitting the excess entirely.