India’s Tier-2, Tier-3 and rural pockets have quietly emerged as the sector’s fastest-growing and most insurance-aware regions. Analysis of Policybazaar’s last five years of data reveals a story of expanding depth, higher financial protection, and increasing stickiness in the hinterlands
Key insights at a glance:
- Non-metro India now leads health insurance growth: Tier-2 and Tier-3 regions contribute 62% of all new health policies, overtaking metros as the primary demand centres.
- Higher cover is no longer a metro phenomenon: Nearly 1 in 2 policies in Tier-2 and Tier-3 now have ₹10–15 lakh coverage.
- EMIs are reshaping affordability: Over 40% of Tier-3 customers now pay premiums monthly.
- Coverage quality is improving: Strong adoption of add-ons and modular plans shows customers are upgrading protection.
- Health insurance is becoming habitual: Rising renewals alongside new sales indicate repeat behaviour and longer-term engagement.
- Family protection dominates smaller towns: ~60% of policies in Tier-2 and Tier-3 are family floaters.
- Claims remain hospitalisation-heavy: Over 80% of claims originate from inpatient treatment.
Tier-2 and 3 regions now drive 62% of all policies sold
Five years ago, metros dominated health-insurance purchases. Today, 62% of all new policies sold come from Tier-2 and Tier-3 India, making the hinterland the sector’s new growth engine.
Share of policies sold
| FY | Tier 1 | Tier 2 | Tier 3 |
| FY22 | 46% | 23% | 31% |
| FY23 | 45% | 22% | 34% |
| FY24 | 44% | 22% | 33% |
| FY25 | 41% | 23% | 36% |
| FY26 | 38% | 24% | 38% |
What this signals:
● Insurance is no longer a metro-led category.
● Distribution, digital onboarding, and awareness campaigns are penetrating deeper.
● The “first-time buyer” base is rapidly expanding outside metros.
Protection depth is rising fast: ₹10–15 lakh policies become the norm
The hinterland is not just buying insurance — it is buying much stronger protection.
Share of policies by Sum Insured:
Tier-2 India
- FY22: Only 1% bought covers above ₹15 lakh
- FY26: 13% now buy ₹15 lakh+ covers
- ₹10–14 lakh segment rises from 27% → 47%
Tier-3 India
- FY22: ₹15 lakh+ covers at 3%
- FY26: Jumps to 14%
- ₹10–14 lakh segment rises from 24% → 49%
A shift from the older ₹3–5 lakh plans to ₹10 lakh+ comprehensive covers is now mainstream even in smaller towns, driven by medical inflation and post-Covid health awareness.
Add-on adoption proves consumers want “better, not cheaper” coverage
With GST no longer impacting premiums, families are not only buying protection products more confidently but are also opting for riders and add-ons that were previously not chosen due to cost considerations. Add-ons like such as consumables cover, cumulative bonus, room-rent relaxation, OPD – are being purchased at extraordinary rates across the country.
| Tier | Add-on Adoption (%) | Policies with >₹10L SI (%) |
| Tier 1 | 228% | 76% |
| Tier 2 | 207% | 60% |
| Tier 3 | 179% | 63% |
On average, each health policy carries 2.2 add-ons in Tier-1, 2 add-ons in Tier-2, and 1.7 add-ons in Tier-3 (by premium) – indicating that even non-metro buyers are actively customising coverage rather than opting for base plans. Tier-2 and 3 customers are beginning to purchase like evolved metro customers – opting for richer, more comprehensive protection rather than low-cost plans.
Modular plans dominate: 96% of all sales across tiers
Modular products – which bundle OPD, maternity, consumables, no-claim bonus, and modern treatment coverage – now account for 96% of total sales. This trend is uniform across metros and non-metros.
Why this matters:
Modular plans help control out-of-pocket expenses – a key factor for growing middle-income families in smaller towns.
Monthly payment modes unlock affordability – especially in tier-3
The EMI model, launched in FY23, has become a major driver of adoption in smaller cities.
EMI adoption growth
| FY | Tier 1 | Tier 2 | Tier 3 |
| FY24 | 9% | 13% | 14% |
| FY25 | 22% | 31% | 35% |
| FY26 | 29% | 38% | 41% |
Monthly premiums are removing affordability friction – especially for young parents, new earners, and self-employed households.
Who buys what? Product mix across tiers
Family-floater adoption is highest in Tier-2 and Tier-3 – a trend driven by joint families and multi-member coverage needs.
| Tier | Individual | Family Floater | Senior Citizen |
| Tier 1 | 43% | 57% | 9% |
| Tier 2 | 39% | 61% | 4% |
| Tier 3 | 41% | 59% | 7% |
Families in tier-2 and 3 regions prefer comprehensive floater covers over individual plans – reflecting the multi-generational household structure in smaller towns.
Renewals & new sales are growing together in India’s hinterlands
Contrary to earlier trends where Tier-2/3 growth came mostly from first-time buyers, now both new and renewal sales are expanding in parallel.
This dual growth indicates:
● Higher long-term awareness
● Lower churn
● Health insurance becoming a stable part of the household budget
Hospitalisation continues to be the primary driver of claims in Tier-2 and Tier-3 regions
% Split of health insurance claims – tier-2/3 hospitals
| Claim Type | Share of Claims |
| Hospitalisation | 80.70% |
| OPD | 11.90% |
| Day-care procedures | 6.70% |
| Maternity | 0.60% |
| Diagnostics | 0.10% |
| Total | 100% |
- Health insurance in smaller towns is still predominantly used for inpatient care rather than routine medical expenses.
- OPD and day-care together account for nearly one-fifth of claims, indicating gradual expansion beyond only hospitalisation.
- The claims mix aligns with the rising preference for higher sum insured policies in hinterland markets.
- Comprehensive hospitalisation cover remains central to protection planning in Tier-2 and Tier-3 regions.
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 EMIs. This reflects a deeper understanding of healthcare costs and a more structured approach to long-term health protection beyond metros.”