Nearly 43 per cent of life and health insurance premiums are paid in rural districts, said a report on Tuesday, signalling a structural shift in demand.
Policybazaar’s study tracked data from FY23 to FY25 to find that districts where over half the population lives in rural areas increased their contribution from 41 per cent to 43 per cent of premiums. This marks a departure from the belief that insurance adoption is concentrated in large, urban centres, it said.
Insurance demand
Districts with 70 per cent or more rural population consistently contributed 23–24 per cent of premiums, according to the report.
Districts with 50-70 per cent rural population saw a rise from 18 per cent to 19 per cent, pointing to increasing traction in peri-urban areas.
Combined, rural-majority districts now form a stable and expanding base for insurers.
This trend suggests improving digital access and distribution to unlock underserved markets.
Cities with fewer than 1 million people contributed 47 per cent of life and health premiums in FY25, up from 44 per cent in FY23
The 1 million to 10 million population cities saw the fastest growth, rising from 26 per cent to 29 per cent
Even towns with fewer than 100,000 people have a significant share.
These numbers indicate that smaller towns with rising incomes and smartphone penetration — “Middle India” — are increasingly participating in formal financial protection.
The pattern extends to motor insurance as well:
-
36 per cent of premiums consistently came from rural-majority districts over three years. -
Within this, semi-rural districts (50–70 per cent) contributed 21 per cent, higher than deeply rural regions at 15 per cent. -
Cities with under 1 million population accounted for 44–47 per cent of motor premiums.
The stability of these numbers suggests this is not a temporary spike but a durable shift in demand.
Motor insurance is also emerging as an entry point, especially for two-wheeler owners, gradually expanding into life and health coverage.
Digital distribution
The data challenges the assumption that digital insurance adoption is largely urban.
Growth in smaller towns indicates that online platforms are:
-
Expanding reach beyond traditional agent-led models. -
Lowering access barriers in semi-urban and rural markets. -
Enabling first-time buyers to enter the insurance ecosystem.
Sarbvir Singh, joint group chief executive officer, PB Fintech, said nearly half of life and health premiums now come from rural-majority and smaller cities, reflecting rising awareness. He added that the gap between urban and rural insurance penetration is gradually narrowing as digital access deepens.
What it means for the insurance industry
The emerging pattern reshapes how insurers will approach growth:
-
Demand is decentralising, with Tier-II and Tier-III markets becoming primary drivers -
Product design must simplify, given that first-time buyers dominate these regions -
Distribution strategies need to be digital-first and inclusive -
Trust and claims experience will become critical differentiators
Future expansion is likely to come from district towns, peri-urban clusters and smaller cities rather than large metros.
Industry perspective
Sameer Mathur, managing director and founder of Roinet Solutions, said financial resilience in India still remains fragile, particularly in the face of rising healthcare costs.
“A single medical emergency can wipe out years of savings. Households need to shift from reactive coping to proactive protection,” he said, adding that adequate health insurance should be purchased early and cover levels should account for rising medical inflation.
He emphasised that an emergency fund must be treated as essential, while protection should be layered through base policies and top-ups rather than relying on a single cover.
On financial planning, Mathur said the traditional focus on returns needs correction. “Protection is not a side conversation; it is the foundation. If wealth is not protected, investments remain at risk,” he noted, advocating a protection-first approach that prioritises health insurance, critical illness cover and income protection.
Looking ahead, he pointed to the need for structural changes in the sector, including simpler products, to drive early adoption and deeper digital distribution. “Insurance should become part of everyday financial journeys rather than a product people buy occasionally,” he said.