Which of the following actions is considered an example of fraud in insurance?

Exaggerating a claim for increased payout is a clear example of fraud in insurance because it involves intentionally misrepresenting the extent of damages or losses to receive a higher settlement than is actually warranted. This act breaches the principle of good faith that underpins insurance contracts, where both parties are expected to be honest and transparent. By inflating claim amounts, the policyholder seeks to benefit unlawfully, thereby undermining the insurance system.

In contrast, filing a claim for real damages accurately reflects the actual loss incurred, adhering to the terms of the insurance policy. Lobbying for better insurance terms involves advocating for changes or improvements in policy provisions, which is a legitimate action within the industry. Observing contractual obligations entails following the agreed-upon terms in the policy, also a key part of maintaining integrity in insurance transactions. Thus, only the exaggeration of a claim constitutes fraud.