Hi Becca!
At present I am in the process of working with senior engineers about this issue on my own phone. The last that I heard from them is that they are continuing to investigate.
As for whether it is merely cosmetic or not, some have said it doesn’t affect their phone’s functioning at all and some, like myself, have experienced other issues that may possibly be tied to it. Everyone has their own opinion as to whether the other issues that are being experienced at the same time are related or not. I am waiting to hear back from the engineers on that front as any opinion here is one provided by a customer and not by Apple techs or engineers themselves.
Three other people in my family alone have 12 pro series phones (2 max and one just pro) and none of them have the flash issue which has caused me to wonder if the issue is truly only software related then why don’t all 12’s display the behavior?
Should you return the phone? Only you can make that choice. I have returned 3 and all the ones I’ve gotten still have the issue because it seems that it happens with all 12 pros manufactured after mid December 2020 and those are all that seem to be available currently— at least in my area. I opted to work with the engineers rather than trading again in the hope that it would help them to find the exact cause. Good luck whatever you decide to do!