Calls for insurers to pay flood claims on policies that don’t offer flood cover are “reckless and politically expedient”, IAG CEO Mike Wilkins said today.

Speaking to the Australia-Israel Chamber of Commerce in Sydney this afternoon, he said such demands were forgivable from customers and inevitable from the media, but “people in any level of government should know better”.

Mr Wilkins says uncovered payouts on large events create a solvency issue for insurers and affect all insurance customers.

“Examined as a standalone proposition it is also quite curious,” he said. “I am unsure of another example whereby government would think it reasonable or appropriate to demand that a private business supply goods and services that had not been bought or paid for.”

Mr Wilkins recently discussed the issue with legendary US investor Warren Buffett.

“He put it simply that an insurance company is not a charitable organisation; it is an organisation that makes promises and keeps them. If something falls outside of those promises it may be that society decides that society should pay.”

Insurers have a clearer view of flood risk now that all levels of government are working on flood maps, Mr Wilkins says.

He also defended IAG’s performance after the Christchurch earthquakes, saying most natural disasters have defined start and end points, but the Christchurch disaster is still happening.

“It is impossible to rebuild homes when the ground is still moving,” he said. “In many instances the earth movement is so bad there is nothing to build homes on.

“We could just cash-settle claims and leave customers to their own devices… but we think we have a moral obligation to rebuild communities rather than leave a ghost town.”

Mr Wilkins says while the industry pays around $20 billion in claims in Australia every year, it must get better at communicating its role and explaining what its products cover.

“We have had product disclosure statements reviewed by language experts and made significant changes.”