Apart from the CW ticket for everyone, which is probably going a bit too far (unfortunately), I think Pucci has it absolutely right and for a full-service airline, which ought to pride itself on customer service, this should be a totally realistic aim.

There is a difficulty with establishing the value of missing luggage, but let's remember that totally lost luggage should be something that occurs very rarely indeed and BA should take full responsibility when it does occur,. They must then give the customer the benefit of the doubt as to the value of the luggage (the same applies to severely damaged, e.g. mouldy, luggage). If customers end up getting overpaid as a result, the way to prevent this is to make sure that the luggage isn't lost! In practice there will have to be a limit on claims, but this should be generous and realistic so that most customers don't lose out. It would be reasonable for it to be class-of-service based [just as a more expensive travel insurance policy has higher limits than a cheaper one] but even it economy classes it should be generous.

More important than the exact value of limits is the ease of claiming. Asking for receipts and so forth is totally unreasonable. Maybe the only workable answer is a standardized amount, paid out quickly if baggage is lost for more than 30 days, with the option for passengers to pay a small extra fee for a higher level of insurance if they have especially valuable luggage. BA also need to rapidly compensate people whose luggage is delayed with payments to cover interim purchases.

How do other airlines deal with this? Most importantly, does anyone do it well, and how?