Consumer rights campaigners have added to the pressure on insurers to be more transparent on the additional cost of paying premiums by instalments.

A General Insurance Code Governance Committee review found some insurers were charging customers more to pay fortnightly or monthly, and in some cases not making the extra cost – between 7% and 11% – clear at renewal.

The committee said last week that the exact costs need to be more clearly spelt out on renewal notices.

Now, lobby groups Financial Counselling Australia and the Financial Rights Legal Centre have demanded action on what they call the “poverty premium”.

Financial Counselling Australia co-ordinator of disaster recovery Louise Hayes says people on lower incomes or under financial pressure are paying more for essential services.

“People who are already stretched should not be charged more because they cannot pay a full year of insurance in one hit,” she said.

“The [code committee] report found some renewal notices failed to clearly show how much more customers would pay by instalment, instead using vague wording such as annual payments ‘may’ be cheaper or instalment fees ‘may’ apply.”

Ms Hayes says this is a “wake-up call" for the insurance industry.

“If some insurers can avoid charging people more to pay by instalments, and others can clearly disclose the extra cost, then the whole industry can do better.

“It’s time for insurers to clearly disclose the total cost of each payment option at renewal, remove unnecessary instalment penalties and ensure customers are not locked into higher-cost payment arrangements when their circumstances change.”

Financial Rights Legal Centre principal of policy development Drew MacRae says consumers need clear information to make informed choices.

“This ... report on general insurance pricing transparency is timely given it comes on the heels of the recent budget announcement that the government will develop and consult on options to improve clarity around the basis of home and contents premiums,” he said.

“Consumers have been kept in the dark for too long on what contributes to their premium price and what they can do to reduce that price ... the practices highlighted are unfair and financially penalise the people who need a break the most.”