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The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a new "Insurance Application Supported by Blocked Amount" (Insurance-ASBA) facility for life and health insurance policyholders. This new system allows customers to block the premium amount in their bank account, ensuring that funds are available, but the amount is only deducted when the policy is issued.
This mechanism is similar to the Application Supported by Blocked Amount (ASBA) process in IPO applications, where funds remain in the applicant’s account and are debited only upon allotment. According to IRDAI norms, the premium payment will only be processed after the customer is informed about the acceptance of their insurance application.
How the Facility Works: UPI One-Time Mandate (OTM)
- UPI OTM (One-Time Mandate) enables users to block funds in their bank accounts for a specific transaction without making an immediate payment.
- The funds remain available and are debited only when the insurance policy is issued.
- This ensures that premium payments are seamless, reducing the risk of failed transactions due to insufficient funds.
- IRDAI has permitted insurance companies to integrate UPI-OTM to enhance customer convenience.
Implementation of Insurance-ASBA in Insurance Premiums
- IRDAI stated that insurance companies can now use the Insurance-ASBA arrangement for premium payments.
- The transfer of funds from the customer to the insurer happens only after the policy is issued, making the process more transparent and efficient.
- The maximum amount that can be blocked will be in line with the limits prescribed by NPCI (National Payments Corporation of India).
Mandatory Rollout by March 1, 2025
- IRDAI has made it mandatory for insurance companies to offer Insurance-ASBA for life and health insurance policies.
- Currently, this facility is being introduced for individual policyholders.
- All insurers are required to launch this system by March 1, 2025, ensuring smooth integration with banking systems.
- Insurers have also been instructed to partner with multiple banks and set up robust processes for implementation.
Benefits of Insurance-ASBA for Policyholders
- No Immediate Deduction: The policyholder can authorize the premium amount without an instant debit, allowing flexibility in payment.
- Ensures Availability of Funds: The amount remains blocked until policy issuance, ensuring no last-minute payment failures.
- Simplifies Transactions: This method streamlines premium payments, similar to how ASBA works in IPO applications.
A Step Towards Digital Financial Convenience
With this initiative, IRDAI aims to enhance digital payment systems in the insurance sector, making premium transactions safer, transparent, and hassle-free for policyholders. Given the success of ASBA in stock market IPOs, this move is expected to revolutionize insurance premium payments by providing policyholders with greater control over their finances.
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