Bima-ASBA for Insurance: Eliminates Unauthorized Deductions

New Delhi, Feb 21 (PTI) Irdai's decision to implement ASBA facility for insurance premium payment will benefit customers by eliminating unauthorised deductions and delayed refunds, say experts.

Insurance Regulatory and Development Authority of India (Irdai) has directed life and health insurers to provide Bima-ASBA, a facility wherein a policyholder blocks the amount towards premium in his or her bank account which gets debited only when the policy is issued.

Insurers have been asked to implement the new payment mechanism Bima-ASBA (Applications Supported by Blocked Amount) through Unified Payments Interface (UPI).

ASBA facility or blocking of funds through UPI is widely used by retail investors in stock market.

Commenting on the Irdai's decision, Jitendra Attra, Chief Financial Officer, SBI General Insurance said Bima-ASBA is a significant step toward enhancing transparency, security, and ease in insurance premium payments.

"By enabling policyholders to authorise premium payments directly from their bank accounts, Bima-ASBA ensures greater control over transactions, eliminating issues like unauthorised deductions and delayed refunds. This will particularly benefit customers who prefer a hassle-free and automated payment mechanism while ensuring their funds remain secure until policy issuance," Attra said.

Sanket Gupta, Chief Financial Officer, IFFCO Tokio General Insurance Company said that like ASBA in the IPO market, which SEBI introduced almost a decade ago, Bima-ASBA will also lead to smooth premium payments.

"With this move, the amount will remain in the policyholder's account until the policy is issued or acceptance is communicated. This will resolve many grievances and disputes that arise between insurance companies and customers/policyholders regarding the timing of policy issuance," he said.

At the same time, Gupta added that the move will ensure that policyholders do not forgo any interest income in the interim until official communication is received regarding the policy's issuance.

Indraneel Chatterjee, Co-Founder, RenewBuy too said that Bima-ASBA is a significant step forward for the Indian insurance sector, with substantial benefits for consumers.

"Policyholders earlier often faced uncertainty regarding premium payments before policy issuance. Bima-ASBA eliminates this ambiguity by blocking funds rather than immediately debiting them, it ensures that premiums are only transferred once the policy is issued and protects consumers' funds in case the policy does not get issued," Chatterjee added.

According to Iradi norms, premium is required to be paid only after the insurer communicates the decision of acceptance of the proposal to customer.

Unified Payments Interface (UPI) One Time Mandate (OTM) feature allows users to block funds in their bank accounts for specific transactions, ensuring availability of funds while deferring actual payments.

With an aim to facilitate smooth transactions of payment of premium, Irdai decided to enable UPI-OTM for insurers.

Under 'Bima Applications Supported by Blocked Amount (Bima-ASBA) facility, transfer of money from the prospect to the insurer happens only when insurance policy is issued," it said.

Insurers are allowed to use Bima-ASBA mechanism for blocking of premium up to the limit specified by NPCI from time to time.

Insurers have been asked to partner with multiple banks and have appropriate systems and process in place.