The truth is, as I have written before, so many money managers from hedge funds to pension funds have underperformed the indices they are investing in. Underperformed plain old vanilla longs. So the logic goes that if they then have to start paying out premium for protection this will further hit, what is in many cases, a pathetic performance.
In addition, with the ECB looking like it's throwing in the towel and set to pump the markets further, who in their right mind needs downside? Yeah right, good luck with that one.
One more reason for low volatility/VIX lies in the structure of the market players themselves now. Our good old friends the "algo" traders using high-frequency trading strategies jump on any movement in underlying stocks at the first opportunity.
The VIX is ultimately a measure of insurance. But too many potential players are being put off by the fact that, if the underlying equity market goes up, stays the same or even goes down a little, buying it is a lossmaking strategy. What a shame that most long players are still in the dark about how the VIX, volatility and options can boost their current meager returns.
Still the dark is a place of fear. A whole 'Index of Fear'.