The costs imposed by the existence of risk can be identified in three areas: Cost of the Loss : This includes both direct and indirect costs. (i) Direct costs being those immediately attributable to the event – e.g. repairs to a damaged vehicle, replacement of goods damaged as the result of a collision, third party compensation, if necessary, assessor’s expenses etc. Cost of Handling Risk : Tim spent on identification, analysis and negotiation of insurance covers could be more profitably employed in income generating activities. The additional monetary costs of loss prevention and reduction together with the costs of consultancy fees and insurers’ profit loading serve to reduce the profitability of the company. Costs Imposed by Risk : Because we live in an uncertain world, individuals are willing to pay amounts in excess of the sums which they stand to lose, on average, in the long term i.e., over their lifetime. This is known as the expected value of loss. The cost of risk, is thus, dependent on three variables, viz., (a) Risk control measures, (b) Uninsured losses and (c) Insurance.Risk, Costs, Distribution of Cost of Risks basis : Private Costs are those costs necessarily incurred by the individual or firm engaging in a particular activity. Social Costs are those which fall on the community at large arising out of that activity.Risk, Cost of : Expenditures which an entity makes because of its exposures to accidental losses. Cost of risk can be computed as the sum of retained losses, plus Insurance premiums, plus expenditures for loss control, plus the administrative cost of operating a risk management.