If a supplier has £100,000 of stock insured against theft on a first loss basis with a sum insured of £20,000 and loses £40,000, what will the insurer pay?

When stock is insured on a first loss basis, the sum insured represents the amount that the insurer agrees to pay in the event of a claim. In this scenario, the supplier has a sum insured of £20,000 against a loss of £40,000.

Since the policy is defined on a first loss basis, the insurer's liability is limited to the sum insured for the specific peril, in this case, theft. Regardless of the total loss being £40,000, the maximum amount the insurer can pay for this loss is capped at £20,000, as stated in the insurance policy.

Therefore, the insurer will pay £20,000, which is the first loss sum insured. This amount does not change based on the actual loss exceeding the sum insured, as the first loss basis is designed to provide cover up to that specified limit for the particular risk being insured. The outcome ensures the insured receives a pre-determined amount in the event of a claim, adhering to the conditions of the policy they have in place.