In the presence of an implicit or explicit government guarantee, market crash insurance prices may even fall when the guarantee is more likely to be activated. Thus, a fall in crash insurance prices could be mistakenly interpreted as a reduced risk, exactly when systemic risk is rising.
This was the time when there was a veritable bubble across credit and equity markets and global policy makers were already warning about huge under-pricing of risks in the run up to the crisis. But unfortunately, nothing, in terms of pre-emptive, proactive and credible policy response, other than these warnings, was delivered.