What type of fraud did Arlene commit when she falsely claimed tornado damage?

The correct answer is soft fraud. Soft fraud, also known as opportunistic fraud, occurs when an individual exaggerates or inflates a legitimate claim or creates a situation that allows for a fraudulent claim to be made. In the case of Arlene, by falsely claiming tornado damage, she engaged in an act that distorts the truth to benefit from an insurance claim, characterizing it as an event that never occurred or as damage that was not as severe as represented.

Hard fraud, on the other hand, involves more blatant and planned acts of deception, such as staging an accident or intentionally causing damage. Physical hazards pertain to unsafe conditions that increase the likelihood of a loss but are not related to the act of fraud itself. Moral hazard refers to changes in behavior that can arise when someone is insured, leading them to take higher risks. Therefore, soft fraud correctly identifies the nature of Arlene's actions as it involves claims misrepresentation instead of more serious fraudulent schemes.