Electric vehicle (EV) insurance surged 670 per cent in FY26 from the year before, making it the fastest-growing product in the country’s motor insurance market, said a new report by Policybazaar.
Tier-II and Tier-III cities account for 77 per cent of the overall insured car market, signalling a shift in how Indians are buying vehicle protection beyond metros.
The findings come at a time when vehicle ownership is spreading rapidly across semi-urban India, fuel costs remain elevated, and awareness around financial protection is improving among first-time vehicle owners.
Non-metro India becomes the biggest growth engine
According to the “FY26 Motor Insurance Trends Report” by Policybazaar, insured car adoption in non-metro India grew 15 per cent year-on-year, compared to 8 per cent growth in metro cities.
The data suggests that motor insurance penetration is no longer concentrated in large urban centres such as Delhi, Mumbai, Bengaluru, and Hyderabad. Instead, demand is increasingly coming from smaller cities where vehicle ownership is rising alongside digital adoption.
Tier-II and Tier-III cities contributed 77 per cent of the overall insured car market in FY26, up from 75 per cent a year earlier.
For insurers and online aggregators, this shift is significant because smaller cities have traditionally been underinsured. Increasing internet access, easier online policy renewals, and rising awareness around claim benefits appear to be accelerating adoption.
The report also showed broader growth across vehicle categories:
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Car insurance market grew 8 per cent year-on-year -
Two-wheeler insurance rose 11 per cent -
Commercial vehicle insurance increased 13 per cent
EV insurance emerges as the standout trend
The sharpest jump came from electric vehicles.
EV insurance policies grew 670 per cent between FY25 and FY26, according to the report. The rise reflects increasing EV sales, especially in urban India, and growing awareness that electric vehicles require specialised insurance coverage.
Unlike conventional motor insurance, EV policies may include protection for batteries, charging equipment, and specialised repair requirements. As EV adoption rises, insurers are also introducing more customised products.
Maharashtra emerged as the leading state for EV insurance adoption, with Mumbai and Pune as major growth hubs. The state accounted for 8 per cent of all insured EV cars in India.
Telangana, meanwhile, recorded the fastest growth in insured cars overall, with a 30 per cent year-on-year rise.
Despite the rapid growth, EVs still form a relatively small share of the insured vehicle base at 1 per cent. Petrol vehicles continue to dominate with a 68.3 per cent share, followed by diesel vehicles at 24.7 per cent and CNG vehicles at 5.8 per cent.
The growing share of CNG vehicles also reflects rising fuel-cost consciousness among consumers, particularly in urban and semi-urban regions.
What vehicle owners are claiming for
The report highlighted that minor collisions remain the biggest reason for motor insurance claims in metro cities. Dense traffic conditions, tight parking spaces, and bumper-to-bumper commuting continue to drive frequent low-value claims.
Other common reasons for claims included:
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Windshield damage caused by road debris -
Bumper and side-panel scratches -
Water ingress-related engine damage during flooding -
Accidental parking damage
The findings underline why comprehensive motor insurance and add-on covers are becoming more important for urban vehicle owners, especially in cities vulnerable to flooding and traffic congestion.
Zero depreciation and roadside assistance gain popularity
Consumers are increasingly opting for add-on covers to reduce out-of-pocket repair costs.
Roadside Assistance (RSA) and Zero Depreciation (ZD) covers emerged as the most preferred add-ons during the first three years of vehicle ownership. According to the report, RSA cover was chosen by 89 per cent of customers, while Zero Depreciation cover was selected by 87 per cent.
Other popular add-ons included:
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Consumables cover: 42 per cent -
Key loss replacement: 39 per cent -
Engine protection: 36 per cent -
Return-to-invoice cover: 20 per cent
For consumers, the growing preference for add-ons indicates a shift from buying the cheapest mandatory policy to choosing broader protection against repair costs and unexpected breakdowns.
Paras Pasricha, head of motor insurance at Policybazaar, said India’s motor insurance market is entering a “more mature and consumer-aware phase”, with growth increasingly being driven by non-metro India, EV-focused insurance needs, and customised coverage options.
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