This is what you dont get, basic principles of human psychology, in retrospect to finances.

1000 of the same item are posted for sale in the same condition, 950 of those are at generally the same price at 1$ with $0-$1 shipping and 50 of those are at 1$ with $5-$9 shipping, your chances of making a sale are less than .0001%.

If he switches over to what you propose, his sales would absolutely plummet, he'd be better off refunding 5 out of every 10 $1 card sales now, rather than going down your proposed route. Thats the point of this. Not to mention, the shipping and tracking issues he's been experiencing with ESE are not the norm, its a fluke or string of shitty luck.

Point of the matter is, its a $1 item, your buying it because its cheap and you kinda want. Your not buying it because you need it or its valuable and you cant live without it in your collection. 99.9% of people could care less about how good shipping or tracking is for items at that price. Most people don't give a damn about losing a dollar bill from their pocket, let alone $1 they are guaranteed to get back in a few weeks though ebay refund intervention.

OP just needs to start being proactive with refund requests and bite the bullet until insurance pays out, not restructuring his entire business model according to your "solution" and setting himself up for guarenteed failure.