Insurance as Credence Goods: On the Allocation of the Burden of Proof

The purpose of this study is to consider the following two questions by examining insurance products as credence goods. First, whether the insurance firm chooses the truth telling when it sells good-type or bad-type insurance product? Second, what is the effect of the allocation of the burden of proof between insurance firm and consumer? First, there are two types of equilibrium in the model. The insurance firm always chooses the truth telling when it sells good-type insurance product in both types of equilibrium. The second type of the equilibrium realizes when the ratio of good-type insurance products is relatively low. Second, what the insurance firm bears a greater burden of proof is not desirable because it lowers the probability of truth telling. This result is not consistent with the general opinion that the insurance firms should bear a greater burden of proof for protecting the consumers.