The Hidden Market

The Problem

Most insurance firms define their target market by who they want to sell to. Consumer Duty requires them to also consider who else might buy the product — and what that means for design, pricing, and governance. The FCA estimates £274 billion in addressable market value across UK financial services associated with underserved customer populations. Firms have been building products for their most profitable, least complex customer while everyone else either struggles to use them, receives worse outcomes, or is quietly turned away.

The Pattern

The structural move is to reframe the target market exercise from a sales definition into a market mapping exercise that treats inclusion as a commercial opportunity, not just a regulatory requirement:

The structural moves

Three-population mapping

Define the target market (customers the product was designed for who are likely to get good outcomes), the adjacent market (customers outside the intended target who may still take up the product and require more design consideration), and the excluded market (customers for whom the product is unlikely to deliver appropriate outcomes). The adjacent population is where overlooked customers are most likely to sit — present but not designed for

Commercial sizing

Quantify the adjacent market as a business opportunity. What would it cost to serve them well? What revenue would it generate? What is the competitive position — are other firms serving this population, or is it genuinely underserved? This reframes inclusion from a cost to be managed into a market to be won

Design action

The mapping must connect to product decisions. The adjacent population requires deliberate design choices: adapt the existing product, create a variant, build a new proposition, or redirect to a more appropriate provider. A mapping that sits in a governance folder without changing what gets built, priced, or distributed achieves nothing

Indicators It's Working

✓Target market statements include explicit consideration of adjacent and excluded populations, not just the intended audience

✓Product development briefs include a hidden market impact assessment with commercial sizing before sign-off

✓The firm can evidence commercially what serving a broader population costs and returns — inclusion framed as opportunity, not just obligation

✓Vulnerable customer volumes reported internally are statistically plausible relative to the general population — a test that reveals whether the firm is looking or not

In Practice

18%

Worked example 1

A home insurer mapped its three populations and discovered that 18% of its policyholders fell into the adjacent market — customers in non-standard properties (listed buildings, thatched roofs, subsidence areas) who had bought a standard policy that would likely produce coverage disputes at claim. Rather than treating this as a compliance risk, they developed a specialist variant with adapted coverage terms and priced it actuarially. Within a year, the variant had attracted new customers from competitors who offered no alternative, generating £2.3 million in new premium income from a population the firm had previously been serving badly by accident.

Worked example 2

A pet insurer analysed its complaints data and found that a significant proportion came from owners of older pets who had bought a lifetime policy without understanding that premiums would increase sharply with age. These customers sat in the adjacent market — technically eligible for the product but not designed for. The insurer created a senior pet product with a flatter premium trajectory and clearer communication about long-term costs, redirecting new applicants with older pets to the more appropriate product. Complaints from this cohort dropped, retention improved, and the new product attracted customers who had previously been uninsured.

Watch-Outs

The failure mode is completing the hidden market analysis as a desktop exercise that never connects to product decisions. A thorough mapping that sits in a governance document but does not change what gets built, priced, or distributed achieves nothing. A second is treating the adjacent market purely as a cost to be managed rather than investigating the revenue and retention opportunity it represents. A third is assuming the hidden market is stable: customer circumstances change, regulation evolves, and the boundaries between target, adjacent, and excluded shift over time.

Evidence & AI Lens

E149% of wealth managers report zero vulnerable clients — a statistical impossibility revealing how completely firms have designed vulnerable customers out of their thinking
E285% of firms claim significant action on vulnerable customers; only 29% conduct proper product testing with vulnerable customers in mind
E3The FCA estimates £274 billion in addressable market value across UK financial services associated with underserved customer populations
E4The FCA’s Products & Services outcome requires firms to identify not just their intended target market but customer groups for whom the product would not be appropriate

AI & Automation Lens

Predictive modelling can identify the adjacent market within existing customer data — flagging clusters of customers whose behaviour, product usage, or outcome data suggests misalignment between their needs and the product they hold. This surfaces the adjacent market as real customers already in the book, enabling proactive product adaptation rather than waiting for harm to manifest. Clustering algorithms can segment the adjacent population by need type, informing whether the commercial response should be product adaptation, variant creation, or redirection.

The problem, in one line

The move

First signal it's working