You offered insurance and the buyer said "no". 
When I deal with someone who wants no insurance, 
I let them know that I'm not responsible for the 
package once it leaves my hands. If it's 
damaged/lost, that's not my fault and I won't 
offer any compensation. Sometimes I have things 
shipped to me under-insured and do so knowing 
full well that if it's lost, that's my own fault 
that it wasn't insured for the full amount. I 
certainly do not expect any additional 
compensation from the seller.

My answer to this buyer would be that I'm very 
sorry (and it is lousy when a package is lost), 
but since it wasn't insured, they're out of luck. 
I wouldn't offer them anything and I think that 
is perfectly fair. They didn't want to cover 
their own butt -- "fair" doesn't mean *you* have 
to cover them when something goes wrong.

All that said, the package *could* just be taking 
a long time. Also, even for mail that wasn't 
insured, you can put a trace on it. I've never 
had a trace actually find anything, but supposedly
there is an effort to determine what post offices 
the package would have passed through and an 
extra search is made at those offices. Traces are 
free (last I know) and I would definitely offer 
to start one for your buyer.

Many Sharp Smiles,
--Drac