Insurers are largely to blame for the unrealistic expectations of consumers, according to the Insurance Ombudsman.

While assigning some blame to government and the media reporting of natural catastrophes for widening the "expectation gap", ombudsman Sam Parrino told a Melbourne conference yesterday insurers are feeding into a delusion that claims will always be paid.

Less than 1% of the 2.9 million claims filed each year go to arbitration, and about one-third of the 16,508 cases heard are determined in favour of the consumer. Mr Parrino says despite this, insurers are still viewed negatively by the public.

"Our experience at the Insurance Ombudsman Service (IOS)... shows the expectations are not that realistic."

The cause is marketing. Mr Parrino says insurers' advertising fails to clarify the fact that cover is not universal, and differing definitions of "flood" are also causing grief.

"People see insurance as all-encompassing because that is how it is marketed," he told the annual IOS conference.

He says insurers often pay claims to lift their standing in the community, only to find their largesse has little effect.

"Disappointingly for the industry, a generous response by insurers to floods does not necessarily translate into a more positive image [of] insurers by the community.

"The industry is more generous at times of natural disaster. We saw it with Cyclone Larry, and in Gippsland. The industry is paying claims it legally need not pay. One can only applaud that.

"But ultimately it raises all sorts of questions about the need to insure. People have the expectation of when there is a natural disaster they are going to be paid whether they have cover or not."

Mr Parrino says insurers must remove complex or legalistic jargon from policy wordings and better educate people about any gaps in insurance cover to lower their expectations.