A company decides to restrict its purchase of non-compulsory insurance to amounts in excess of a certain level. What does this decision signify?

The decision to restrict the purchase of non-compulsory insurance to amounts in excess of a certain level indicates that the company is practicing risk retention. This means that rather than transferring all of the risk to an insurance provider, the company is opting to retain some portion of the risk by self-insuring up to a specified limit.

By retaining the risk, the company assumes financial responsibility for any losses that occur up to that limit, only seeking coverage for amounts that exceed this self-imposed threshold. This approach is often taken by businesses that assess their risk exposure and determine that they are capable of covering losses up to a certain amount without the need for insurance, thereby saving on insurance costs for smaller, manageable claims.

In this context, the decision highlights a strategic approach to managing risk instead of completely transferring it to an insurer, which would involve higher premium payments. It is a common practice among companies that want to maintain some level of control over their expenditures related to insurance and losses.