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Is it possible to single out an IC outside of a challenge?

I've had games where a bunch of guys would target my scar veteran (in a block of saurus) in a normal fight

In short, yes. Any model (or supporting model) that's in contact with the character base can declare their attacks against the character.

Then what's the point of challenges?

To possibly get overkill credit (number of wounds +5 is the maximum, so that character in a challenge could be worth a lot of combat resolution). To limit how much damage that character does to your Rank and File troops. To possibly force them to decline the challenge and not be able to allow that character to attack or use its leadership that round. To protect your character from multiple Rank and File attacks.

There are quite a few good reasons.

Overkill,

To prevent a character from just raping your unit. Say a character with Sword of Bloodshed is attacking your unit and he might just destroy tons of your guys. you challange him with your champion so he doesn't kill tons of your dudes for that round. Especially relavent with a character on a dragon as his mount is taken away from combat, he won't be able to breath on the enemy and rack up combat res(he is capped at +5 for overkill)

Some weapons/abilities only activate in challanges.

It allows 2 characters to attack each other without interference from their units.

There are alot of tactics you can employ by using challenges to your advantage. You can throw out challenges when you have a tooled up lord and your opponent doesn't so you can either get an easy kill with your character, or send someone to the back if the challenge is refused.

If you have a BSB going up against a unit that would likely kill him, he could throw out a challenge so that only 1 character could attack him instead of the whole unit, increasing his chance of survival.

WoC characters get some benefits from winning a challenge against other characters.

These situations are game to game, and come up based on matchups, but there are some strategies that can be employed through clever use of the challenge rules.

Watch out for units with kb they love to target the bsb and take him down so you don't get the bonus anymore. I always give him a ward save just to save him