Bima-ASBA: New UPI payment mechanism for insurance premiums launched

It allows policyholders to block funds in bank accounts via UPI, ensuring a smoother transaction process without immediate debits

The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a payment mechanism to ease premium payments for life and health insurance policies.

 

The initiative called Bima-ASBA (Applications Supported by Blocked Amount) starts March 1 and will allow policyholders to block funds in their bank accounts via the Unified Payments Interface (UPI), ensuring a smoother transaction process without immediate debits.

 

Policyholders can authorise insurers to block a specific amount in their bank accounts before the acceptance of an insurance proposal. This means that the funds remain available in the account but cannot be utilised for other purposes until the insurer makes a decision on the application. If the proposal is approved, the insurer will request the bank to debit the blocked amount; if rejected, the funds will be unblocked and returned to the policyholder without any deductions.

 

“The transfer of money from the prospect to the insurer happens only when an insurance policy is issued. In this facility, insurers can offer a one-time mandate for blocking a certain amount through UPI in the bank account for the concerned prospect,” said a circular IRDAI issued on February 18.

 

How Bima-ASBA works

 

The process for utilising Bima-ASBA is straightforward:

 

Opting for Bima-ASBA: When applying for an insurance policy, customers can select an option that allows their bank to block the premium amount.

 

Request for blocking funds: The insurance company sends a request through its partner bank to block the required amount in the customer's account.

 

Consent and blocking of funds: The bank seeks approval from the customer. Upon consent, the bank blocks the premium amount and notifies the insurer.

 

Waiting period: The blocked funds remain in the customer's account but are unusable until the insurer decides on the application.

 

Payment on acceptance: If approved, the insurer requests the bank to debit the blocked funds and transfer them to their account.

 

Refund on rejection or cancellation: If rejected or if the customer cancels their application, the blocked amount is released back into their account.

 

If an insurer does not process an application within 14 days, the blocked amount will automatically be unblocked by the partner bank.

 

Benefits of Bima-ASBA

 

Convenience: Policyholders can ensure that sufficient funds are available for premium payments without immediate deductions, making budgeting easier.

 

Automatic refunds: In cases where applications are not accepted or are canceled, customers can expect a swift return of their funds.

 

Interest accrual: While funds are blocked, they may continue to earn interest, providing additional financial benefits.