Nothing, it seems, is immune to the impact of the economic slowdown: jobs, homes, businesses – now even the family pet. Cats, dogs and horses are facing deliberate injury – or even paying the ultimate price – as owners seek payouts from pet insurance policies.

Fake claims on pet policies, which range from injuries inflicted by owners to claims related to non-existent pets, are now the fastest growing area of insurance fraud. Figures from the Association of British Insurers show that detected pet insurance fraud soared to nearly £2m last year, from £420,000 the year before. But the true extent of the fraud, counting all the false claims paid out, is thought to be much higher and is pushing up the cost of policies, which now average £220 a year.

"The recession is quite an obvious catalyst for people to commit insurance fraud," said specialist insurance lawyer Claire Laver.

The bulk of the fraudulent claims come from exaggerated veterinary bills, or from claims for illnesses or injuries animals had before owners took out their policies. Other "owners" simply invent pets, take out an insurance policy, and then slap in a claim.

Insurance lawyers have also seen cases, usually involving pedigree dogs and show horses, where owners have deliberately maimed or even killed an animal and disguised the incident as an accident to bank a big payout.

Carys Clarke, a solicitor and qualified non-practising vet at specialist insurance law firm Berrymans Lace Mawer, said: "If the animal is not coming up to the expected standard, potentially by maiming the animal [and claiming on the policy] the policyholder can make up for loss of earnings or income."

Her colleague Claire Laver said wounding and killing animals to claim insurance cash was rare, but "unfortunately maiming and deliberate destruction of animals does happen".

The two lawyers recounted one case of a dog whose owner claimed £24,000 for surgery within 14 months. When a vet was sent to examine the dog the owner claimed he had become too ill to look after it and had handed it over to the RSPCA. There was no trace of the dog at the RSPCA, however. "We had no information as to whether the dog ever existed," said Clarke.

The ABI only started collecting the data in 2009. Rising vet bills are another factor behind soaring claims. Research from Sainsbury's Finance says cat and dog owners fork out an average of £17,000 for their four-legged companions over their lifetime. The average annual cost of owning a dog is £1,183, while the figure for cats is £1,028. Food accounts for the bulk of that (£399 for a dog and £418 for a cat), while vet fees and medical treatment amount to £177 for dogs and £133 for cats. This is set to rise dramatically, however, with vet fees increasing by up to 15% a year.

One problem is rising drug prices. A course of Amoxicillin, a frequently used antibiotic, usually costs £17.99, but a branded version of the same drug could cost twice that. Unlike GPs, vets are not required to choose the cheapest drug. A vet could choose more expensive drugs than necessary if they are aware the animal is insured.

Unlike human medical records, veterinary records do not follow the animal if the owner moves to a new practice. Changing this would help reduce fraud, as would a fraud register and fitting animals over a certain value, such as horses, with microchips, Laver and Clarke argue.

Insurers are now discussing setting up a claims database for pet insurance. A similar industry-owned database for travel insurance is already in the works. The ABI's pet insurance panel had a "positive" meeting recently and will meet again later this month, says a spokeswoman. The database would include everyone who ever makes a claim on a pet policy, so if a policyholder joins another insurer and make another claim, the insurer would be alerted to a possible fake claim.

Selwyn Fernandes, managing director of LV= pet insurance, said: "Fraud registers are already in place for car and home insurance, which have been used to successfully identify and prosecute those who make fraudulent claims.

"It is appalling to think that some owners would deliberately harm their animals for financial gain, and these criminals must be stopped."

Overall, insurance fraud costs £2bn a year, adding an extra £44 to customers' annual insurance bills, according to the Insurance Fraud Bureau. The bureau has offered its member insurers the opportunity to share intelligence reports on organised pet insurance fraud. It is also working with the ABI to launch a national register of known fraudsters early next year.