This is being discussed at length on a owners site I frequent. At the end of the day, the guests should take out adequate travel insurance (yes, it is debatable if they will be paying out). You as the rental owner still have the property available to rent, it is the guests inability to arrive at your property that is the issue. What would you have done if they couldn't get a rental car?
It depends whether you are running this as a business or for pin money. Why should you lose income through no fault of your own, especially if you have turned away booking because this time was booked already? Some of the other owners are offering the following options:
1. Re- book at a late date (similar season rates).
2. Refund monies if able to re- let the property to someone else.
3. As no clean is taking place and no utilities used, refund a token amount to cover these expenses.
4. Offer to provide written confirmation to the guests that no refund is due for non arrival, this can then be presented to their insurance company.
Difficult one really, but I can't see the "big players" refunding monies off their own backs for those not insured, can you?
Mark