Urban India is over-insured but rural India is still waiting

It was a rainy afternoon in a village near Varanasi when a 42-year-old farmer was sitting holding a government pamphlet about health insurance. The words promised “coverage for all” for just a few hundred rupees a year. He had already enrolled in such a scheme last year. But when his wife fell seriously ill, the closest hospital was 50 kilometres away. The local clinic where he eventually rushed her wasn’t on the insurer’s network. The claim was denied. He borrowed Rs 80,000 to pay the bills.

Now moving to Gurgaon, a 29-year-old software engineer, holds three different health insurance covers: an employer group plan, a personal top-up, and a critical illness rider. Ironically, despite being “over-insured,” she still wonders if she would have enough to deal with a medical emergency.

This contrast captures India’s insurance paradox in 2025: urban India is over-insured, while rural India is still waiting for real protection.

The Uneven Landscape

On the surface, India’s insurance story looks encouraging. Insurance penetration measured as premiums as a percentage of GDP stood at 4.2% in 2023–24, according to IRDAI, up from 3.7% a decade ago. But penetration masks the reality:

● Urban India drives nearly 70% of all premiums, concentrated in metros and tier-1 cities.

● Rural India, which houses 65% of the population, contributes less than one-third of premiums.

● A NITI Aayog paper in 2023 noted that only 22% of rural households had health insurance, compared to nearly 60% in urban India.

● Even within urban India, many policyholders are covered more than once: IndiaInsurTech Association’s 2024 survey found that 28% of salaried urban Indians own three or more overlapping policies.

So while one India is grappling with duplication and confusion, the other is still struggling with first-level access.

Access Without Relevance Is No Access at All

Inclusion efforts have been commendable. Government schemes like Ayushman Bharat and state-level initiatives have pushed millions into coverage. Micro-insurance and low-ticket policies are available in villages. But here lies the paradox: access does not equal relevance.

● Hospital Gaps: Policies often cover big private hospitals, not the smaller clinics and government centres rural families actually use.

● Irregular Premium Burden: Even ₹500 can feel steep for households with seasonal incomes.

● Awareness and Trust: A 2024 FICCI survey showed that 46% of rural households with insurance did not know how to file a claim.

In urban India, the picture flips. Tax-saving motives, sales pressure, and fear-driven marketing push professionals to buy multiple products without clarity. They may be paying more than necessary, yet remain under-prepared for out-of-pocket expenses like deductibles, room rent limits, or uncovered procedures.

The Human Cost

At its core, insurance isn’t about numbers. It’s about whether a family feels secure when life turns uncertain.

For that farmer, protection would have meant walking into his local clinic, flashing his insurance card, and walking out without debt. For that software engineer, it would mean a single, adequate policy with seamless claim settlement instead of juggling three overlapping ones.

This paradox shows us that the metric shouldn’t just be coverage penetration it should be coverage relevance.

Bridging the Paradox: What Needs to Change

1. Design Grounded in Reality

○ Rural policies must allow instalment-based premiums aligned with harvest cycles.

○ Hospital networks must extend to local clinics and government facilities.

2. Simplification in Urban Markets

○ Insurers and advisors should focus on adequacy, not multiplicity.

○ Policyholders need clearer tools to assess overlaps and gaps.

3. Awareness Beyond Sales

○ Literacy drives in local languages, using community influencers, SHGs, and digital vernacular platforms can build trust.

4. Tech for Seamless Use

○ Mobile-first claims, AI-based guidance, and vernacular apps can reduce friction. But technology must simplify not intimidate.

5. Regulatory Nudges

○ IRDAI’s recent move to push insurers for “insurance for all by 2047” is a start. The next step is setting standards for relevance like requiring rural hospital coverage or simplifying overlapping policies.

Closing Thought

India’s insurance journey has moved from scarcity to abundance but unevenly. Urban India today buys too much of what it doesn’t fully understand, while rural India still waits for a cover it can actually use. True inclusion won’t come from counting the number of policies sold. It will come when she sleeps easily with a single, well-designed policy, and when he walks into his village hospital without worrying about debt.

Until then, India’s insurance map will remain a tale of two countries within one—one over-insured, the other still unprotected.

(Views are personal; the author is Joint Chairman and MD at BajajCapital)