India's health insurance sector is experiencing a significant transformation, with demand for comprehensive coverage increasingly driven by Tier-2 and Tier-3 cities. New data from Policybazaar for FY27 reveals that smaller urban centers are outpacing metropolitan areas in the adoption of Unlimited Sum Insured (SI) health policies, indicating a nationwide shift in consumer behavior.
Tier-3 Cities Outpace Metros in Policy Adoption
According to Policybazaar's findings, Tier-3 cities now represent 41.71% of all Unlimited SI health insurance purchases. This marks a notable surge, as Tier-1 cities saw their share decline to 33.28% from 51.31% in FY25. Tier-2 cities also strengthened their position, increasing their contribution to 25.01% from 16.99% over the same period. Combined, Tier-2 and Tier-3 markets now constitute nearly two-thirds of all Unlimited SI policy purchases, underscoring a growing appetite for robust health protection beyond India's largest urban centers.
Surat and Hyderabad Lead Premium Growth
Among individual cities, Surat recorded the highest increase in average ticket size (ATS) for health insurance premiums, rising by an impressive 45%. Hyderabad followed closely with a 43% increase, and Mangalore saw a 41% jump. This sharp growth suggests that consumers in these cities are actively opting for higher-value health insurance policies with enhanced benefits and unlimited coverage, moving away from basic plans.
Even within major metropolitan markets, demand for comprehensive health insurance remained strong. The National Capital Region (NCR) registered a 36% increase in ATS, while Bengaluru and Pune recorded growth of 30% and 29%, respectively. This sustained demand is attributed to rising awareness among salaried professionals and tech-driven workforces regarding the critical importance of long-term financial security against escalating healthcare costs.
Factors Driving the Shift
Several key factors are contributing to this evolution in India's health insurance landscape. The report highlights increased awareness post-Covid-19 pandemic, the rising cost of hospitalization even in smaller cities, greater digital accessibility to insurance products, and the expansion of the middle-income population as primary drivers. These elements are collectively pushing consumers towards higher-value health protection plans.
Siddharth Singhal, Business Head – Health Insurance at Policybazaar, commented on the trend, stating that the rapid rise in Unlimited SI adoption reflects a clear shift in consumer mindset. He noted that Indians are increasingly recognizing that traditional health insurance covers may not keep pace with medical inflation, prompting buyers to opt for significantly higher or unlimited protection rather than incremental upgrades.
“The strong uptake across Tier-2 and Tier-3 cities, younger consumers, first-time buyers and NRIs points to a broader evolution in risk awareness,” Singhal added. “The popularity of add-ons such as consumables cover and Day-1 benefits further indicates that customers are seeking comprehensive protection that reduces out-of-pocket healthcare expenses.”
The findings suggest that India's health insurance market is entering a new phase, with growth increasingly fueled by emerging cities rather than solely metros. As awareness continues to rise and consumers prioritize stronger financial protection against medical emergencies, smaller cities are expected to remain at the forefront of the country's expanding health insurance landscape.