The Indian insurance sector is poised for a major shift in how premiums are paid with the introduction of Bima-ASBA (Applications Supported by Blocked Amount) guidelines by the Insurance Regulatory and Development Authority of India (IRDAI). Starting March 1st, 2025, insurers will be required to block the premium amount in the policyholder’s account and only debit it once underwriting is successfully completed. This change necessitates the adoption of UPI One-Time Mandates, impacting how insurers collect payments from customers.
In this blog, we’ll delve into the mechanics of Bima-ASBA, explore its impact on both policyholders and insurers, and discuss why it represents a significant advancement in insurance payments.
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What is IRDAI’s Bima-ASBA?
Bima-ASBA (Applications Supported by Blocked Amount) is a UPI-based payment system introduced by IRDAI, enabling insurance companies to block the policyholder’s premium amount in their bank account during the underwriting process. Unlike the previous system, where insurers debited the premium upfront—sometimes leading to adjustments or refunds—this new method ensures that the funds remain in the customer’s account until the policy is approved.
Effective from March 1, 2025, Bima-ASBA leverages UPI One-Time Mandates to block the required amount in the policyholder’s account at the time of application. The blocked amount is only deducted once the insurer completes underwriting and issues the policy. If the application is rejected or withdrawn, the reserved funds are automatically released.
This system works similarly to ASBA in IPOs, where funds stay in the investor’s account until shares are allotted. With Bima-ASBA, the premium remains securely blocked until the insurer completes underwriting, ensuring greater transparency and control over payments.
As of March 1, 2025, Bima-ASBA is mandatory for insurers, while policyholders have the option to use it. By reducing payment failures and improving transaction security, Bima-ASBA is making insurance premium payments more seamless and efficient.
How Do Insurers Get Compliant with this Circular?
Insurance companies now need to offer UPI One-Time Mandates to their customers at checkout to comply with the IRDAI’s Bima-ASBA guidelines. This ensures that policyholders’ premium amounts are securely blocked in their bank accounts during underwriting and only deducted upon policy approval.
What are UPI One-Time Mandates?
Bima-ASBA uses UPI’s One-Time Mandate (OTM) system to securely block premium amounts in policyholders’ bank accounts. Funds are only debited upon policy approval, ensuring control, security, and continued interest earnings until underwriting is complete.
Key Benefits of Bima-ASBA
Bima-ASBA enhances the insurance payment process by making it more seamless, transparent, and efficient for policyholders.
- Less Friction: Policyholders no longer need to worry about refund delays if a policy application is rejected. The blocked amount is automatically released, eliminating the need for follow-ups.
- Increased Transparency: Funds remain in the customer’s account until the policy is issued, ensuring insurers do not benefit from float income. This builds trust and provides complete visibility into the payment process.
- Interest Retention: Since the premium is debited only after approval, policyholders continue to earn interest on the blocked amount during the underwriting process, which can take over 15 days.
- Convenience: Customers can ensure sufficient funds are available without immediate deductions, making budgeting easier and premium payments stress-free.
- Automatic Refunds: If an application is rejected or withdrawn, the blocked amount is swiftly released, ensuring a smooth and hassle-free experience.
Example Use Case: How UPI-Linked Bima-ASBA Works
Scenario: Anil’s Life Insurance Application
Anil, a prospective policyholder, applies for a life insurance policy with InsureLife Insurance Company. Unsure of whether he will be allotted the policy, Anil opts for Bima-ASBA instead of paying the premium upfront, authorizing his bank to block the premium amount via UPI.
Application Process
Anil fills out the life insurance proposal form, and selects the Bima-ASBA option. He provides his UPI ID linked to his bank account to authorize the premium blocking.
Bank Authorization
After submitting the proposal, Anil receives a UPI request from his bank to block the premium amount. Once he approves, the bank blocks the specified amount, ensuring that it remains in his account but cannot be used for other transactions.
Insurer Notification
InsureLife Insurance Company receives confirmation that Anil’s premium amount is blocked. At this stage, the insurer is assured of payment authorization, though the funds have not yet been deducted.
Underwriting Process
InsureLife begins its underwriting process, reviewing Anil’s application, documents, and medical reports (if required). This process may take up to 14 days.
Policy Approval & Premium Deduction
If Anil’s policy is approved, InsureLife instructs the bank to debit the blocked amount. The premium is transferred to the insurer’s account, and the policy is issued.
Policy Rejection Scenario
If InsureLife rejects Anil’s application based on underwriting criteria, the insurer notifies the bank to release the blocked amount. The funds are unblocked in Anil’s account without any deductions or delays.
Cancellation Scenario
If Anil decides to cancel his application before underwriting is complete, he submits a cancellation request to InsureLife. The insurer then instructs the bank to release the blocked amount within one working day.
Benefits for Anil
- No Upfront Payment: The premium remains in his account until the policy is approved, reducing financial risk.
- Interest on Blocked Amount: The blocked funds continue earning interest during the underwriting process.
- Transparency & Security: The funds are only deducted if the policy is approved, and if rejected or canceled, the amount is automatically released.
Bima-ASBA ensures Anil only pays for a policy if it is issued, making premium payments more seamless and hassle-free compared to traditional methods.
Why Did the IRDAI Introduce Bima-ASBA?
The Insurance Regulatory and Development Authority of India (IRDAI) introduced Bima-ASBA to enhance transparency and simplify premium payments while safeguarding policyholders’ interests. This move aligns with the Master Circular on the Protection of Policyholder’s Interests issued in September 2024, which outlined key guidelines for premium payments:
- Premium payments should only be made after policy approval. Insurers must communicate their underwriting decision before collecting premiums, ensuring that policyholders pay only for accepted policies.
- Risk coverage begins only upon receipt of the premium. This ensures that coverage is granted only after payment confirmation, preventing any ambiguity.
- No deposits are required at the time of application. Except in cases where policies are issued based on a declaration of good health, insurers cannot collect proposal deposits alongside the application. This prevents under- or over-collection of premiums.
- Explicit consent is mandatory for premium deductions. Insurers must obtain clear approval from policyholders before deducting premium amounts from their bank accounts.
Bima-ASBA was introduced in response to industry requests to streamline premium collection while ensuring policyholder protection. This facility not only makes premium payments more seamless but also aligns with IRDAI’s goal of improving operational efficiency in the insurance sector.
Optional Nature of Bima-ASBA for Policyholders
Bima-ASBA is an optional facility designed to enhance convenience for policyholders, but customers are not required to use it. The IRDAI mandates that insurers must offer Bima-ASBA as an option for life and health insurance policies, but policyholders can still choose to pay premiums through traditional methods.
Importantly, insurers cannot reject an application simply because a prospect decides not to use Bima-ASBA. The IRDAI requires insurers to include a standard declaration in proposal forms, allowing applicants to choose whether they want to authorise premium payments via the Bima-ASBA mechanism. Regardless of the payment method chosen, all existing regulatory protections for policyholders remain intact.
Technology Behind Bima-ASBA: How UPI One-Time Mandates Power the System
Bima-ASBA leverages UPI’s One-Time Mandate (OTM) system, a type of E-Mandate, a technology that enables secure and controlled fund blocking. This system allows policyholders to authorise the blocking of their premium amount in their bank account, ensuring that funds are only debited once the insurer approves the policy.
Similar to the ASBA mechanism used in IPO applications, the blocked amount remains in the policyholder’s bank account, continuing to earn interest until the underwriting process is completed. If the policy is not approved or is not processed within 14 days, the blocked amount is automatically released, ensuring policyholder funds remain secure and accessible.
Why Do Businesses Need to Adopt Bima-ASBA Compliance?
Adopting Bima-ASBA compliance offers multiple advantages for insurers, including:
- Customer Trust: Providing a secure and transparent payment mechanism enhances policyholders’ confidence in the insurer. Customers appreciate knowing their funds remain under their control until policy approval.
- Regulatory Requirements: The IRDAI mandates that insurers offer Bima-ASBA, ensuring adherence to evolving industry regulations while fostering greater compliance.
- Operational Efficiency: Automating premium collection through UPI OTM reduces administrative workload and minimizes manual errors, streamlining the underwriting and payment process.
- Risk Mitigation: Since funds are only deducted after policy approval, Bima-ASBA reduces the risks associated with refund processing, incorrect premium collection, or policy cancellations.
By integrating Bima-ASBA, insurers can not only enhance their operational processes but also build stronger relationships with their customers, reinforcing trust in the insurance ecosystem.
Razorpay’s Key Features for Bima-ASBA Compliance
Razorpay is the first UPI payment gateway to offer a seamless solution for Bima-ASBA compliance, ensuring insurers can integrate the new regulatory requirements effortlessly. With our advanced UPI One-Time Mandate (OTM) solution, insurers can enhance operational efficiency while delivering a frictionless experience for policyholders.
- Effortless Integration: Razorpay’s solution integrates smoothly with existing insurance systems, minimizing disruption and enabling quick adoption.
- Secure and Reliable: Built on industry-leading security standards, our platform ensures every transaction remains safe and compliant.
- Automated Mandate Management: From mandate creation to tracking and release, our automated system simplifies the entire process.
- Real-time Visibility: Insurers get instant access to the status of blocked amounts, ensuring transparency and better financial control.
Conclusion
Bima-ASBA marks a significant step forward in transforming insurance premium payments, offering greater security, transparency, and efficiency for both insurers and policyholders. By leveraging UPI One-Time Mandates, this system ensures policyholders retain control over their funds until policy approval, reducing friction and enhancing trust in the insurance process. As insurers move toward compliance, adopting seamless solutions like Razorpay’s Bima-ASBA integration can streamline operations and improve customer experience. With regulatory backing and growing adoption, Bima-ASBA is set to redefine the way insurance payments are handled in India.
Frequently Asked Questions (FAQs)
1. What is the deadline for insurance companies to implement the necessary systems for Bima-ASBA compliance?
Insurance companies must ensure that their systems are ready for Bima-ASBA compliance by March 1, 2025. After this date, customers must have the option to chooseOne Time Mandates on checkout when applying for a policy.
2. Is Bima-ASBA mandatory for all policyholders?
Bima-ASBA is currently applicable only for new policies that meet the regulatory criteria. Additionally, it is not mandatory for policyholders to choose the One Time Mandates option at checkout.
3. Will the UPI-linked Bima-ASBA facility be available for all insurance policies?
IRDAI guideline states Bima-ASBA is applicable on all Life & Health Insurance policies for now.
4. If a customer no longer wants the mandate after accepting it, can they or the merchant cancel it? If yes, how?
Once a customer has accepted a mandate, they cannot cancel it themselves. Only the merchant has the authority to cancel the mandate if needed.
5. Is the 14-day expiry period for the Bima-ASBA mandate calculated by date or time of creation?
The 14-day expiry period for the Bima-ASBA mandate is determined by the merchant, who sets it in the expiry parameter at the time of mandate creation.
6. Can UPI OTM (One-Time Mandate) be supported on RuPay Credit Cards?
Yes, UPI OTM can be supported on RuPay Credit Cards, allowing users to set up recurring payments directly through their credit card.
7. Since OTM revocation functionality is not available, if merchants use the token delete API, will the hold be released?
No, deleting the token does not automatically release the hold. Until the OTM revocation feature is introduced, the mandate will remain active unless manually canceled by the customer.
8. How long will the funds be blocked under Bima-ASBA?
The funds will remain blocked until the premium payment is approved and settled or until the 14-day mandate expiry period is reached.
9. What happens if a customer’s mandate is not approved within the 14-day block period?
If the mandate is not approved within 14 days, it will expire automatically, and the blocked funds will be released back to the customer’s account.
10. Can insurers charge extra fees for using Bima-ASBA?
No, insurers are not allowed to charge any additional fees for using the Bima-ASBA payment facility. The process must be free for policyholders.
