Irdai's Bima-ASBA Will Solve The Issue Of Delayed Premium Refunds And Make Payments Easier: Here's How

Buying an insurance policy often comes with one significant pain point for policyholders, making immediate premium payments, sometimes even before their policy proposal is approved. Often, many customers find themselves chasing refunds for months if their application is rejected.

However, all policyholders don’t need to worry anymore. A new initiative by the Insurance Regulatory and Development Authority of India (Irdai) aims to change this experience for the better.

On February 18, the insurance regulator asked insurance companies to set up a new premium payment mechanism called Bima-ASBA (Applications Supported by Blocked Amount) which intends to leverage the Unified Payments Interface (UPI) to streamline transactions. Much like UPI auto-pay, this feature will allow policyholders to block funds in their bank accounts for premium payments instead of paying it upfront to the insurance companies.

The amount will only be debited when the policy proposal is accepted, making the process more transparent, secure, and hassle-free.

Shilpa Arora, co-founder and COO of Insurance Samadhan believes this is a landmark move for the insurance industry. In a post on the social media platform LinkedIn she stated, “One of the most common grievances we come across is delayed premium refunds, where customers keep chasing insurers for months after their policy isn't issued.”

“With ASBA, you no longer need to pay the premium upfront when buying insurance. Instead, the amount is blocked in your bank account and is only debited when the insurer accepts your proposal and issues the policy,” she says.

This payment feature will eradicate the problem of policyholders chasing their delayed premium returns. Arora writes, “No policy issued? No worries! If the insurer doesn't process your application within 14 days, the blocked amount is automatically unblocked, saving you from unnecessary hassles.”

Now let’s understand how Bima-ASBA works;

Premium payment differs from insurer to insurer. Typically, when purchasing an insurance policy, customers are required to pay the premium upfront, before or during their application is reviewed or approved. If the insurer later rejects the proposal, the process of getting a refund can be lengthy and troublesome.

Set to be rolled out starting March 1, 2025, this is how Bima-ASBA will eliminate this problem;

• The insurer will initiate a one-time mandate via UPI to block the required amount in the buyer’s bank account.

• The blocked premium amount will be debited only when (and if) the insurer accepts the policy proposal.

• If the insurer rejects the proposal, the blocked amount will be automatically released.

This means that the blocked amount remains in the customer’s account until the insurer underwrites and approves the policy. So if the proposal is accepted, the premium is debited, and the policy is issued. If the proposal is rejected, the blocked amount will be automatically released within one working day, saving customers from the hassle of refund requests.

Moreover, insurers will work with multiple banks to establish contractual agreements for the smooth implementation of this feature.

Is Bima-ASPA Mandatory?

While this payment feature gives a significant advantage to policy buyers, Irdai has ensured that nobody is compelled to use this method.

This facility is optional, meaning customers can still choose from the existing payment options if they prefer traditional methods.

Why This Feature Is Good For Policy Buyers

This payment facility holds the potential to significantly improve financial management and trust within the insurance sector. It has multiple benefits for customers, such as;

• No Immediate Debit: Unlike the existing system where money is deducted upfront in most cases, policy buyers will keep their funds blocked until the insurer confirms the policy issuance.

• Security of Funds: Till the time any policy is approved funds will remain in the policy buyer’s account until approved ensuring that the insurance customers do not end up facing any unnecessary stress while waiting for underwriting decisions.

• Timely Updates: Rather than running pillar to post chasing their delayed refunds, customers will be able to receive timely updates regarding the fund blocking, debiting, and release process, when the payment is initiated by UPI.

• No Additional Charges: Irdai has mandated that insurers cannot levy any extra fees for suing Bima-ASBA, which means this option will not incur any additional charges on behalf of policy buyers.