Standard Fire & Special Perils Policy (SFSP) and Industrial All Risks (IAR)
The two main forms of material-damage cover for business property: the Standard Fire and Special Perils Policy, which names twelve insured perils, and the Industrial All Risks policy, which covers accidental damage unless excluded — with declaration policies and the end of tariff rates.
SFSP: a named-perils policy
The Standard Fire and Special Perils Policy (SFSP) pays only for damage caused by a peril it names. There are twelve: fire; lightning; explosion or implosion; aircraft damage; riot, strike and malicious damage (RSMD); storm, tempest, flood and inundation (STFI); impact damage; subsidence and landslide; bursting or overflowing of water tanks and pipes; missile-testing operations; leakage from automatic sprinklers; and bush fire.
So cyclone, riot and flood damage to insured property are covered, as is damage from an overflowing water tank. Earthquake and terrorism are not among the twelve. In the classic SFSP, earthquake (fire and shock) is an extension bought for extra premium, and terrorism is likewise an extension. IRDAI's standard Bharat products, by contrast, include earthquake in the base cover.
What the SFSP does not do
The SFSP is a material-damage policy. It pays for physical loss of or damage to the property insured. It does not pay for the business income lost while the property is being repaired. That consequential loss needs a separate Fire Loss of Profits (FLOP) policy.
Stock is a particular difficulty, because its value moves through the year. A declaration policy is designed for businesses whose stock values fluctuate, such as seasonal traders. The insured declares stock values periodically, commonly every month, and the premium is adjusted to the declarations, subject to the minimum premium the clause retains.
IAR: an all-risks policy
The Industrial All Risks (IAR) policy works the other way round. It covers accidental physical loss or damage to the insured property unless the cause is specifically excluded. The insured must first show that such a loss has occurred; it is then generally for the insurer to show that an exclusion applies. Under a named-perils policy, by comparison, the loss has to be brought within one of the listed perils.
IAR is designed for large industrial risks: factories, power plants, refineries and other complex facilities. All risks does not mean every loss is paid. The policy has its listed exclusions, and it carries deductibles and sub-limits. It also includes features such as debris removal, the cost of clearing and disposing of damaged structures and materials after an insured loss, which can be substantial for a large industrial property.
Rates: from tariff to free pricing
Until the end of 2006 fire insurance rates were fixed by the Tariff Advisory Committee (TAC). They were freed from the tariff with effect from 1 January 2007, and insurers now set their own rates. Motor third-party premiums are different: they are still notified by the government.
Rules at a glance
The same accident under two policies
Illustration: at a packaging plant near Pune, the firm's own forklift reverses into a storage rack, which collapses and crushes finished goods. Nothing was on fire and no storm was blowing.
Under an SFSP the question is which of the twelve named perils caused the damage. Impact damage is a named peril, but in the classic SFSP impact by the insured's own vehicles is an extension that has to be bought; without it the loss is outside the policy. Under an IAR the starting point is different: this is accidental physical damage, so it is covered unless the insurer shows that a listed exclusion applies, and the policy deductible is then taken off the claim.
How a deductible works on IAR claims
- Assumptions, for arithmetic only: an IAR policy with a deductible of ₹5,00,000 on each claim; two separate accidental losses in the year, neither excluded.
- First loss, assessed at ₹12,00,000: payable = ₹12,00,000 − ₹5,00,000 = ₹7,00,000.
- Second loss, assessed at ₹3,00,000: this is below the ₹5,00,000 deductible, so nothing is payable.
- Total borne by the insured = ₹5,00,000 + ₹3,00,000 = ₹8,00,000 out of losses of ₹15,00,000.
Result. The insurer pays ₹7,00,000 and the insured bears ₹8,00,000. The deductible amount is invented; each IAR policy states its own deductibles and sub-limits.
Key points
- The SFSP names twelve insured perils, counting fire itself.
- Earthquake and terrorism are extensions to the classic SFSP, not named perils.
- The SFSP does not cover loss of business income; that needs a FLOP policy.
- IAR covers accidental physical loss or damage unless excluded, subject to deductibles and sub-limits.
- Fire rates were freed from the tariff from 1 January 2007.
Common misunderstandings
- Earthquake is not one of the twelve SFSP perils: in the classic policy it is an extension, though the standard Bharat products include it.
- All risks does not mean all losses: an IAR policy has listed exclusions, deductibles and sub-limits.
- Fire rates are no longer fixed by the Tariff Advisory Committee: they have been set by insurers since 1 January 2007.
Questions people ask
Is flood damage covered under the SFSP?
Yes. Storm, tempest, flood and inundation (STFI) is one of the twelve named perils.
Who has to prove what under an IAR policy?
The insured must first show accidental physical loss or damage; it is then generally for the insurer to show that an exclusion applies.
Who is a declaration policy meant for?
Businesses whose stock values fluctuate, such as seasonal traders. Stock values are declared periodically, commonly monthly, and the premium is adjusted, subject to the minimum premium the clause retains.
What this lesson relies on
- Standard Fire and Special Perils policy wording
- Industrial All Risks policy wording
- IRDAI standard products Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha (from 1 April 2021)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.