Health insurance in smaller cities is no longer a marginal story in India’s insurance market. Data shared by Policybazaar shows that first-time health insurance buyers on its platform rose 277%, from the FY22 level to nearly 18 lakh in FY26, while Tier 2 and Tier 3 cities accounted for 67% of new customers. The shift points to a wider change in how households outside major metropolitan centres are approaching medical risk, family finances and protection against hospital costs.
The figures do not represent the entire health insurance market. They come from Policybazaar’s own customer base and were reported by the Times of India. But the direction of the movement is significant. First-time buyers from Tier 2 and Tier 3 cities grew 351% between FY22 and FY26, outpacing the overall growth in each of the four years. Their share of new buyers increased from 56% in FY22 to 67% in FY26. Around seven in 10 additional first-time buyers during the period came from these cities.
That makes the trend more than a story about a growing digital sales channel. It suggests that insurance adoption is spreading into urban markets where household incomes, healthcare access and awareness may differ considerably from the conditions of large metros. The important change is not simply that more people are buying policies. It is that the next wave of buyers is increasingly coming from smaller cities and is selecting higher levels of coverage than earlier first-time customers.
The growth was uneven across the four-year period. First-time buyers increased by 5% in FY23, 40% in FY24, 67% in FY25 and 54% in FY26, according to the data. The cumulative rise to nearly 18 lakh reflects a sustained expansion rather than a single-year spike. However, the figures do not establish whether the increase was driven by rising incomes, greater awareness, changes in medical costs, improved digital distribution, tax or regulatory changes, or a combination of these factors.
What the numbers do establish is that smaller-city demand is growing faster than the overall pool of new buyers on the platform. Cities in Kerala recorded some of the highest year-on-year growth rates: Malappuram grew 128.34%, Kottayam 122.66%, Alappuzha 120.76%, Thiruvananthapuram 114.74% and Palakkad 113.63%. Nagpur recorded growth of 53.33%, while Coimbatore grew 57.40%.
These locations are not uniform markets. They include district centres, established urban economies and cities with different levels of healthcare infrastructure and household purchasing power. The data does not explain the reasons for the variation between them. It does, however, show that first-time insurance demand is being generated across a wider geography than the conventional metro-led picture of India’s insurance market.
The age profile adds another layer to the shift. People aged 26 to 35 accounted for 27.66% of first-time buyers, followed by those aged 36 to 45 at 21.98%. Together, the 26-to-45 age group represented 49.64% of new customers. These are typically the years in which households take on long-term financial responsibilities, including dependants and family healthcare needs. The data does not establish the occupation, income or family structure of these buyers, but it indicates that new demand is concentrated among working-age adults rather than older customers entering the market for the first time.
The concentration among younger and middle-aged buyers also matters for the way insurance products are introduced in smaller cities. A first policy may be purchased through a digital platform, but the customer’s understanding of exclusions, waiting periods, room-rent limits, claim procedures and renewal obligations will determine whether the policy provides practical protection. Policybazaar joint group CEO Sarbvir Singh said first-time buyers need help understanding their policies and navigating claims. He said the company’s role was to take customers to a policy they understood and support them at the time of a claim.
That statement identifies a central institutional issue in the expansion of insurance: access to a policy is not the same as access to effective coverage. A policy can be sold in a smaller city without resolving whether the customer understands its terms or can navigate the claims process. As new buyers enter the system, the quality of explanation and post-sale assistance becomes part of the urban insurance infrastructure, even though it is delivered through financial and digital institutions rather than municipal agencies.
The coverage amounts selected by new customers provide another indication of changing expectations. The average sum insured doubled from Rs 6.3 lakh in FY22 to Rs 13.1 lakh in FY26. In FY26, 68% of first-time policies provided coverage of Rs 10 lakh or more, compared with 32% in FY22. A Rs 10 lakh cover was the most common choice, accounting for 51% of policies.
These figures show that the expansion is not limited to low-value entry-level policies. New buyers are increasingly choosing larger covers. The data does not say whether this reflects higher medical expenses, advice from intermediaries, product design, household income growth or a greater perception of healthcare risk. It does show that the financial scale of the policies being purchased has changed substantially over four years.
The shift also has a clear gender dimension. Men accounted for 82.81% of first-time buyers, while women made up 17.19%. This gap is one of the most pronounced features in the dataset. It indicates that the spread of first-time health insurance has not been evenly distributed between men and women, even as overall adoption has widened geographically.
The figures do not explain whether the gender gap reflects differences in who makes household financial decisions, who purchases policies, whose name appears as the policyholder or differences in employment and income. Without that information, the data cannot establish the cause. It does establish that women remain substantially under-represented among first-time buyers on the platform, making gender an important unresolved issue in the next phase of insurance expansion.
Older households are also less visible among new buyers. Only 7.36% of policies covered families whose eldest member was above 65. This could reflect underwriting practices, affordability, existing coverage patterns or the age structure of the households purchasing policies. The supplied data does not distinguish between these possibilities. Still, the proportion shows that the current growth is being led primarily by younger households and families in which the eldest member is below 65.
The trend arrives amid the Insurance Regulatory and Development Authority of India’s focus on expanding coverage to the “missing middle” — people who remain outside the insurance system. The Policybazaar figures offer one view of how that expansion may be taking place: through first-time buyers, younger households and increasingly smaller urban centres. They do not measure the full size of the uninsured population, nor do they show how many policies remain active or how claims are settled.
The reported increase in coverage following the removal of GST in September 2025 is another factor recorded in the data. The source does not provide a separate numerical estimate of how much of the increase was attributable to that change. It is therefore not possible from the supplied evidence to isolate the effect of GST removal from other drivers of demand. The timing nevertheless places the change within a broader policy and pricing environment that may influence how households evaluate insurance purchases.
For smaller cities, the larger urban question is whether financial protection is keeping pace with the expansion of urban households and services. Insurance does not replace hospitals, doctors, transport access or public health capacity. But it affects whether a household can absorb a medical shock without exhausting savings or interrupting other essential spending. The reported movement into higher-value policies suggests that at least some new buyers are seeking greater protection, while the gender and age data show that access remains uneven.
The evidence therefore confirms a strong geographical shift in first-time health insurance adoption, accompanied by higher average coverage and a concentration among people aged 26 to 45. It does not establish the causes of city-level growth, the quality of customer understanding, the performance of claims or the extent to which the trend reflects the wider market beyond Policybazaar. Those questions will determine whether rising policy sales translate into meaningful financial resilience for households across India’s smaller cities.
