Here is a tale for our time to send a wry grin around the whiskers of the Cheshire cat. Since big supermarkets muscled into the sleepy world of pet insurance five years ago, vets' fees have rocketed.

Since 1999 in fact, vets' fees have been rising at about ten per cent a year.

Nobody disputes that recent providers such as Sainsbury's Bank, which entered the market in 1998, and Tesco, which arrived in November 1999, have transformed the market, but those on fixed incomes keeping four-legged friends for cheap and easy company may be worried.

Robert O'May, an insurance manager at Sainsbury's Bank, said: ''Fees have risen rapidly, around ten per cent per year for the last three or four years, with a ten to 15 per cent loading in London and the South-East.

"Vets say fees needed to rise from a very low base as they look to recover their costs.''

Mr O'May said the Sainsbury's Bank policy, one of the best buys in a new independent report, attracts pedigree cats and dogs, which have higher and more frequent bills.

Tesco, which has been so successful in targeting owners of mongrels that 370,000 cats and dogs are on its books, said it attracts customers who never thought of pet cover before.

With monthly premiums at Tesco from £4 per cat and £7 per dog, it may be equally important the supermarket has virtually no marketing costs by selling through stores, and relatively low admin costs by using call centres. Once pet owners have bought a policy, they tend to claim.

One in three pets need medical treatment each year, and Mr O'May said ongoing treatment easily costs £20 to £30 a month, far more than people are ready to pay on the National Health.

Hip replacements for a labrador can cost £1,500, care for a cat in a road accident can top £850 and MRI brain scans are prescribed for a growing number of cats.

Alternative treatments catching on for animals include physiotherapy for arthritis, acupuncture, homeopathy and herbal medications. One provider, Morethan, offers a service with counselling for owners when pets die.

Launched in 1976 when Patsy Bloom and David Simpson founded Petplan, pet insurance has boomed into a £250m-a-year industry. The survey, carried out by financial research group Defaqto, pinpoints the good and the bad.

Brian Brown, of Defaqto, said: "It is a large untapped market with huge potential, but it is harder to predict where the market goes after large rises in premiums in recent months."

Only about 15 per cent of household pets, mostly cats and dogs, are covered by insurance. That is about 1.85 million policies, usually costing at least £100 a year.

Mr Brown said: ''Nobody would have paid £3,000 to get a dog better a few years ago, but it is quite common today. Vets put up charges knowing insurance will pay. Ninety per cent of claims relate to vets' fees, so premiums are rising steeply. NFU Mutual lifted premiums 25 per cent in April."

The squeeze on costs means two things will happen. More claims will be kicked out -Sainsbury's Bank said 13,000 are refused each year. Also, insurers will try to get a grip of costs by saying where and how treatment will be given.

Defaqto's best buys are M&S, Sainsbury's Bank, Pet Protect, Scottish Pet Insurance, Paws Pet Insurance and NFU Mutual.

* www.echobusiness.co.uk/per sonalfinance.html