Combining home and auto cover with one insurer produces a visible discount on both. The discount is real, and it is applied to base rates that may not be competitive.
The discount applies to that insurer's own price
A multi-policy discount reduces a premium calculated from the insurer's own rating plan. It says nothing about how that plan compares with any other company's.
A large discount applied to a high base rate can still produce a higher final premium than a small discount applied to a low one.
Comparing final premiums rather than discount percentages is the only meaningful test.
Discounts are also applied after the rating factors have done their work, so a company that rates a risk harshly starts from a worse number.
Few insurers are competitive in both lines
Home and auto are underwritten separately, using different data, different loss patterns and different appetites within the same company.
A company strong on auto in a given state may be expensive on home there, particularly where catastrophe exposure is concentrated.
Bundling asks the buyer to accept the weaker of the two prices in exchange for a discount applied to both.
Where the weaker line is home insurance in a catastrophe-exposed state, the gap being papered over can be larger than the discount itself.
The economics behind it are about retention
Customers holding two policies switch far less often, and acquisition cost is among the largest single expenses in personal insurance.
The discount is funded by that saving on retention rather than by any reduction in the underlying risk being insured.
It survives for that reason even where one of the two policies is unprofitable on its own.
Bundling creates a single point of failure
A claim or a non-renewal on one policy can affect the other, since both sit with the same company under the same underwriting judgement.
Insurers withdrawing from a region generally withdraw from the whole bundle, which leaves the policyholder replacing two policies in the same month.
Splitting cover between insurers spreads that exposure, at the cost of the discount itself.
It also means a disputed claim in one line does not put the household's other coverage into the same conversation.
The comparison has to be repeated
Rating plans change at different times, so a bundle that was cheapest at purchase can drift out of position within a few renewal cycles.
Because the discount is stated prominently on every renewal notice, the drift is easy to miss entirely.
Pricing the two policies separately every few years is what reveals whether the bundle is still doing the job it was chosen for.