Which of the following best describes the principle of indemnity in insurance?

The principle of indemnity is fundamental in insurance, focusing on restoring the insured to the same financial position they were in immediately before the loss occurred, without allowing them to profit from the insurance claim. This principle ensures that policyholders are compensated for their loss but do not benefit financially from it. It reflects the idea that insurance is meant to provide a safety net against unexpected financial burdens rather than serve as a way to gain from unfortunate events.

The principle prevents the insured from receiving more than the actual loss, which could otherwise lead to moral hazard, where individuals might take greater risks if they know they can profit from a loss. This makes B the best choice as it captures the essence of indemnity accurately, emphasizing the restoration of the insured's financial state rather than creating a profit.

In contrast, the other choices focus on different concepts. For example, providing bonuses to policyholders, reducing premiums for high-risk clients, or exposing fraudulent claims does not align with the fundamental aim of indemnity, which is strictly about compensating for losses rather than altering the insurance experience or addressing client behavior.