Here are my thoughts. This seems fair to me, generals can die/be captured, but...
1) It only happens once the division is down a certain % of its strength/highly disorganised/both. A general is far more likely to be in the front lines if the formation is in disarray and many men are dead. I reckon it should be something like a minimal chance once you hit 75% strength/10% org, rising to a small chance at 60%, a medium chance at 50% and you're really chancing you arm if it falls to 25% of your total strength AND you're disorganised. This also punishes players who let their divisions fall into total disorganisation instead of pulling back. If you've let your unit fall into complete chaos, bad things can happen. Organisation should mean something more than just being a ticking clock at the end of which the unit has to withdraw from combat for a little breather.
2) If your division is surrounded and there's no airbase (except perhaps plains where someone could possibly get the general out in a small biplane or something) and it then gets wiped out, you should lose ALL military units attached to that army. What, do you think they teleported out or something if they're in the middle of mountains, heavy urban terrain without an airport or mired in a swamp? Even if there is infrastructure your chances of losing your generals should go up dramatically. Don't get your best guys encircled! You'll lose more than just that crack Panzer division!
3) Don't introduce completely random elements. I think both Yahtzee Croshaw and Angry Joe have complained about this before and I agree. A player who loses a general should lose that general because they did one of the stupid things above. I constantly rage at getting the "bank run" event in DH. Sure, it's historical to occasionally have economic downturns. Do you still think its fun to routinely lose chunks of cash/IC and take random dissent increases because the game decided its time to mess me up?
4) Leader Skill/traits should have something to do with it. An idiotic 0-skill moron with the "Reckless Buffoon" trait should have far more chance of getting himself encircled and killed than a Manstein, Mannerheim, Auckinleck or Zhukov. War is no place for fools, and even the people "behind the lines" are going to get themselves killed if they simply can't cope.
I think if it's done like this no one will really be able to complain. The org thing might rankle some people, but again you really shouldn't be allowing your divisions to fall into chaos.