I sell mostly low value items, and over the last 5 years, I don't think more than 3 items have been lost in the post, so at the moment, I just accept the risk. Given the volume of overseas buyers on Etsy, I would definitely feel I was missing out on sales by not offering international delivery! (So far this month, I have received 6 orders from the UK and 5 from USA.)
I put the following statements within my policies:
"If you wish to be certain of compensation in case of loss or damage in transit, please ask for recorded or signed-for delivery when you place your order (additional fee required)."
"I cannot be held responsible for items which go missing in transit. Ask for recorded or signed-for delivery when you place your order to guarantee compensation."
Despite saying this, on the occasions when I've been notified of non-received items, I have always re-sent (so far) for the sake of good customer relations. On the other hand, up to this point, the items concerned have been easily replaceable zines & badges etc. I would probably have to be stricter if a one-off item was concerned, which would involve a lot of extra work to replace with something similar.
GOOD ADVICE: Always ask for 'proof of posting' (which is free) at the Post Office; then keep these somewhere safe & organised! The Royal Mail will compensate lost overseas mail up to the value of £20, so long as you can prove you posted it:
http://www.royalmail.com/business/help-and-support/available-compensation-for-our-international-serv...If I sold higher value items, I would definitely be looking at offering AirSure or International Signed-For options, which offer more tracking and/or delivery confirmation, as well as compensation up to £50. It would be possible to list it as an optional add-on in your store by creating a separate listing for whatever the current price is (see Royal Mail site:
http://www.royalmail.com/international-parcels). You can then make it clear that refunds (or whatever your policy is) will only be available if the extra insurance option has been purchased by the customer.