New BIMA-ASBA framework could declutter unclaimed amounts with insurance companies

As of March 31, 2024, unclaimed amounts held by life insurance companies totalled Rs 20,062 crore, according to IRDAI's annual report.

The Insurance Regulatory and Development Authority of India's (IRDAI's) fresh set of guidelines on Bima-ASBA could resolve the longstanding problem of unclaimed policy amounts cluttering the balance sheets of insurance companies, said Nilesh Sathe, independent director, TATA AIA.

The new guidelines which will take effect from March 1, 2025, state that only the necessary premium amount will be blocked and debited once the policy is issued.

Prior to Bima-ASBA, insurance companies held large sums of unadjusted deposits paid by customers upfront but never converted into policies, such as when a customer abandoned the process or the policy was not issued. These unclaimed amounts earned no returns for insurers.

As of March 31, 2024, unclaimed amounts held by life insurance companies totalled Rs 20,062 crore, according to IRDAI's annual report.

Bima-ASBA allows individuals seeking insurance to set up a one-time mandate (OTM) through UPI, which reserves a designated amount in their bank account for the premium. This amount is blocked and undisturbed until the insurer approves the policy proposal. In case the proposal is rejected by the insurer, the funds must be promptly released back to the customer’s account.

Need for revision of guidelines

The initial guidelines, issued on September 5, 2024, mandated that insurance companies were prohibited from accepting deposits or payments from customers until a policy was fully processed and prepared for issuance.

However, in this case, for policies requiring medical underwriting, insurers were required to carry out health checkups and assessments to evaluate eligibility and premium rates - steps that incurred costs either paid to medical providers or absorbed by the insurer itself.

These regulations failed to clarify what would happen if a customer chose to abandon the policy partway through the process, leaving the outcome uncertain.

According to a CEO of a life insurance company who did not want to be quoted, under the September 2024 framework, if a customer opted out from the polcy after the necessary steps such as medical underwriting, insurers were left with no recourse to recoup their incurred expenses as they did not charge upfront payment for these processes.

"While the intent was to safeguard policyholders, this approach posed significant operational difficulties for insurance companies," the CEO explained.

Insurance companies, then, raised concerns with IRDAI, urging it to adjust the guidelines, as bearing the cost of medical underwriting without any upfront payment security was unsustainable and could hurt their efficiency and profitability.

To address this, the IRDAI on February 18, 2025, introduced tweaks wherein insurance companies can proceed with medical underwriting and other checks without taking the money immediately. If the policy is approved and issued within 14 days, the blocked amount can be debited from the customer’s account and transferred to the insurer. If the company fails to issue the policy within 14 days, the blocked amount meeds to be automatically released back to the customer.

"Since the money is already blocked, customers are less likely to withdraw at the last minute after medical underwriting," said Sathe.

Also, previously issuing a policy could take up to a month due to delays from insurers' front leaving funds in limb. Now with the regulator imposing a 14-day timeline, it is likely to nudge insurers to act faster.

For customers, the new mechanism would allow them to earn interest as the blocked amount would remain with their in their bank accounts until debited.