In my experience the hallucinations always come before the panic sets in during the first few episodes and were the reason for the panic, not the other way around. Once it has happened a few times and I knew what was happening I no longer panicked but still hallucinated. These hallucinations in a lot of people can be incredibly vivid and involve all of the senses.

I'm skeptical that the hallucinations would come from the mind's need to explain situations, otherwise people would hallucinate every time they came across something that they can't fully understand.