India’s non-metro markets are accounting for a growing share of retail health insurance business, marked by higher sum insured levels, modular products, and wider use of monthly premium payments, according to new data from Policybazaar.
Over the past five years, Tier-2, Tier-3, and rural areas have overtaken major metros as the largest contributors to new health policy sales on Policybazaar’s platform. By FY26, 62% of new health insurance policies originated from Tier-2 and Tier-3 locations, up from a combined 54% in FY22, while Tier-1’s share declined from 46% to 38% over the same period. The figures indicate that health insurance demand is increasingly concentrated outside metropolitan centres. Policybazaar attributes this to greater use of digital channels, local distribution partnerships, and outreach efforts in smaller cities and towns, which have brought in both first-time buyers and repeat customers in India’s hinterland.
Siddharth Singhal, head of health insurance at Policybazaar, said India’s health insurance growth “is increasingly being driven by Tier-2 and Tier-3 markets, which now account for a majority of new policy purchases. What is encouraging is not just the scale of adoption, but the shift in quality – customers in smaller towns are opting for higher sum insured covers, modular plans, and flexible payment options like Equated Monthly Instalments (EMIs). This reflects a deeper understanding of healthcare costs and a more structured approach to long-term health protection beyond metros.”
Policybazaar’s data points to a clear shift toward mid- to high-range sum insured in non-metro India. In Tier-2 cities, policies with sum insured between Rs 10 lakh and Rs 14 lakh rose from 27% of sales in FY22 to 47% in FY26. Over the same period, covers above Rs 15 lakh increased from 1% to 13%. Tier-3 regions show a similar trajectory. The Rs 10 lakh to Rs 14 lakh band grew from 24% to 49% between FY22 and FY26, while policies with sum insured above Rs 15 lakh rose from 3% to 14%. These changes mark a shift away from earlier reliance on Rs 3 lakh to Rs 5 lakh covers toward larger limits that more closely reflect prevailing hospitalisation costs in private facilities. For insurers across Asia monitoring secondary and tertiary cities, the pattern illustrates how rising medical prices and greater awareness of treatment costs can influence movement toward higher limits once basic penetration is established.
Another notable development is the increased use of riders and modular structures to configure benefits. Across tiers, Policybazaar reports that customers typically attach multiple add-ons per policy, averaging 2.2 in Tier-1, 2.0 in Tier-2, and 1.7 in Tier-3, based on premium share. Commonly selected add-ons include consumables cover, cumulative bonus features, room-rent relaxation, and outpatient (OPD) benefits. This use of riders indicates that buyers are considering benefit design and potential out-of-pocket exposure in addition to headline sum insured.
Modular products that bundle OPD, maternity, consumables, no-claim bonus, and modern treatment benefits now account for about 96% of health policies sold across Tier-1, Tier-2, and Tier-3 markets on the platform. For Asian insurers, the Indian experience underscores that configurable, component-based products remain a central feature of health portfolios in markets with growing middle-income segments.
Payment options are also shaping behaviour, particularly in lower-tier markets. Since EMI-based premium options were introduced in FY23, monthly payment adoption has risen across all tiers, with the fastest growth in Tier-3. In Tier-3 locations, EMI use reached 41% of policies by FY26, compared with 14% in FY24 and 35% in FY25. Tier-2 adoption increased from 13% in FY24 to 38% in FY26, while Tier-1 rose from 9% to 29% over the same period. Monthly premium structures are being used by young families, new earners, and self-employed individuals who may prefer to spread insurance costs over the year rather than commit to a single annual payment. For carriers and intermediaries in Asia-Pacific, similar instalment models may be relevant where household cash flows are uneven or where annual lump-sum payments have constrained uptake.
The product mix across tiers reflects differing household arrangements. In Tier-2 markets, family floater policies represent 61% of sales, compared with 39% for individual plans and 4% for senior citizen covers. Tier-3 markets show a comparable breakdown, with 59% family floater, 41% individual and 7% senior citizen plans. In Tier-1 cities, family floater policies account for 57% of sales, while 43% are individual covers and 9% are senior citizen policies. The higher floater share in Tier-2 and Tier-3 markets aligns with the prevalence of joint and multi-generational households, where several family members are insured under a single shared sum insured.
Policybazaar notes that growth in Tier-2 and Tier-3 markets is now coming from both new policies and renewals, rather than being dominated by first-time buyers. Parallel growth in these segments suggests that health insurance is becoming a recurring element of household spending for a larger segment of customers outside metros. Claims patterns in smaller markets remain centred on inpatient events. Data from Tier-2 and Tier-3 hospitals shows that 80.70% of claims relate to hospitalisation, with OPD accounting for 11.90%, day-care procedures 6.70%, maternity 0.60%, and diagnostics 0.10%. While policies are still used mainly for significant medical episodes, OPD and day-care now represent nearly one-fifth of claims, in line with wider use of modular and add-on benefits that extend beyond traditional hospitalisation cover.
India’s changing health insurance profile is occurring alongside a forecast expansion of the national market. According to SkyQuest, the country’s health insurance sector is projected to grow from US$15.99 billion in 2024 to about US$38.2 billion by 2032, implying a compound annual growth rate of 11.5%. The study links this trajectory to higher treatment costs, evolving consumer expectations, and broader access to insurance products as households and employers respond to unplanned medical expenses.
At the same time, insurers globally face rising medical cost trends. WTW’s 2026 Global Medical Trends report estimates that global health insurance costs will rise 10.3% in 2026, after increases of 10% in 2025 and 9.5% in 2024. Asia-Pacific is forecast to record the largest regional increase, at 14%, ahead of Latin America, the Middle East and Africa, North America, and Europe.
