Kathmandu. The Insurance Regulatory and Development Authority of India has launched the Insurance ASBA service. This information technology-based service has allowed insurers to block (hold) the amount of insurance premium through the Unified Payments Interface (UPI mandate) for issuing life insurance and health insurance plans.
Issuing a detailed circular on Tuesday, the regulator said that insurers will have to mandatorily provide Insurance ASBA service to their potential insured for life and health insurance plans from March 1.
Just as public companies temporarily block the amount of shares demanded by customers in their bank accounts during the issuance of primary shares, Indian insurance companies are also going to do the same. Under this process, the insurer will withhold the amount equivalent to the first insurance premium from the amount in the account of the insured who fills in the insurance proposal form and submits it through ASBA. In case the insurance proposal is approved, the insurer will withdraw the amount from the account to its own account, and in case of rejection, the withheld amount will be released.
After this facility comes into operation, the hassle of cash transactions in insurance will be eliminated, and the financial source of the amount used by the insured to pay the insurance premium will also be transparent. Even if the first premium is paid in a physical transaction, the insured will not be required to disclose the source of the money to the insurer at the time of the transaction, as the bank has already identified the source of such money.
In India, the consent given once by the insured to freeze the amount in the account through UPI will be valid for a maximum validity period of 14 days or the date of the underwriting decision, whichever comes first.
Nepal also needs insurance ASBA
Insurance companies in Nepal are also feeling the need for insurance ASBA services, as implemented in India. In recent times, as employees are leaving their jobs, new recruitments are increasing, and people with a money-making mentality have started appearing in the banking and financial sector, they are emphasizing on cashless transactions, saying that the operational risk is increasing. In response to this, the use of digital payment methods is being encouraged while collecting insurance premiums through various discount and gift schemes.
To reduce the risk of cash transactions and maintain transparency, most non-life insurers have made arrangements to collect insurance premiums through digital means. After all life insurers collect renewal insurance premiums through digital wallets, only a limited number of life insurers collect the first insurance premium through digital wallets.
In Nepal, the CDS Clearing House is providing a service to freeze the amount in the account for electronic transactions. If the C ASVA service provided by CDS for share trading can be used for insurance trading as well, it will be easier for insurers to control operational risk.
The Nepal Insurance Authority has been instructing that only after identifying the customer, accepting the insurance proposal or updating the identity, collecting renewal insurance premium payments, and paying insurance claims can be done. Despite such instructions from the authority, insurers are facing practical difficulties. Since CDS does not have access to the details related to the bank account (customer name, bank account number, bank name), the insurer is forced to assume that whatever is mentioned in the proposal is true. Due to this, the personal details and bank account details of the insured mentioned in the proposal form have not been verified.
The size of the insurance fund of life insurance companies has started to exceed seven and a half trillion rupees. The size of this fund is getting bigger and bigger, so if any insurance-related payment transaction (first insurance premium, renewal insurance premium and insurance claim payment) can be done in a non-physical manner through completely digital means, the operational risk associated with cash transactions can be brought under control.
