Surat, Hyderabad outpace metros as Tier-3 India powers health insurance boom

India's health insurance market is witnessing a major shift beyond metropolitan cities, with Tier-3 towns emerging as the biggest drivers of demand for comprehensive health covers and Surat outperforming larger cities in premium growth.

According to Policybazaar data, Tier-3 cities accounted for 41.71% of all Unlimited Sum Insured (SI) health insurance purchases in FY27, overtaking Tier-1 cities, whose share declined 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. Together, Tier-2 and Tier-3 markets now account for nearly two-thirds of Unlimited SI policy purchases, highlighting the growing appetite for comprehensive health insurance outside India's largest urban centres.

The trend marks a significant change in consumer behaviour, with comprehensive health insurance no longer remaining a metro-centric financial product. Rising awareness following the Covid-19 pandemic, increasing hospitalisation costs even in smaller cities, greater digital access to insurance products and a growing middle-income population are driving the shift toward higher-value health protection, according to the report.

The growing demand is also reflected in the premiums customers are willing to pay.

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Surat tops premium growth

Among cities, Surat recorded the highest increase in average ticket size (ATS), rising 45%, followed by Hyderabad at 43% and Mangalore at 41%. The sharp increase suggests consumers in these cities are increasingly opting for higher-value health insurance policies with unlimited coverage and enhanced benefits rather than basic plans.

Even among larger metropolitan markets, demand for comprehensive health insurance remained healthy. NCR registered a 36% increase in average ticket size, while Bengaluru and Pune recorded growth of 30% and 29%, respectively. The report attributes this to growing awareness among salaried professionals and technology-driven workforces about the importance of long-term financial protection against rising healthcare expenses.

Policybazaar's findings also indicate that consumers are increasingly willing to spend more on health insurance rather than simply buying entry-level covers. Higher average ticket sizes across cities suggest policyholders are opting for richer benefits, larger coverage amounts and products that minimise out-of-pocket medical expenses.

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Medical inflation reshaping buying behaviour

The surge in demand for Unlimited SI plans comes against the backdrop of rising medical inflation and increasing treatment costs across India. The report notes that consumers are becoming more aware that conventional health insurance policies with fixed sums insured may not be adequate to meet the cost of serious illnesses or prolonged hospitalisation.

Siddharth Singhal, Business Head – Health Insurance at Policybazaar, said the rapid rise in Unlimited SI adoption reflects a clear shift in consumer mindset. According to him, Indians increasingly recognise that traditional health insurance covers may not keep pace with medical inflation, prompting buyers to opt for significantly higher or unlimited protection instead of gradually upgrading from ₹5 lakh or ₹10 lakh policies.

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Singhal added that 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. 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 India's health insurance market is entering a new phase, where growth is increasingly being driven by emerging cities rather than metros. As awareness rises and consumers prioritise stronger financial protection against medical emergencies, smaller cities are expected to remain at the forefront of the country's expanding health insurance landscape.

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