Pay PayPal is not insurance.  It is a recovery service with a discretionary payment component where recovery is not possible.

Irrespective of the value of the goods contained in the parcel, if the seller can prove postage, the buyer has no right of recovery against the seller, and when it comes to what constitutes proof of postage, it’s been a very long time since a stamped registered post receipt or Click and Send have been the only kind of proof PayPal will accept.  In fact today they will accept anything which provides reasonable grounds to believe it was and sent and sent to the correct address, with the minimum proof for parcels sent regular post being, a receipt that something was sent to the suburb in which the buyer resides. 

As for the buyer lodging a dispute with Ombudsman: sellers can, buyers can’t. 

Buyers can’t because, as PayPal is not insurance, if postage is proved and no right of recovery exists, then the only alternative is for PayPal to make a discretionary payment, with the only disputable decision arising being if PayPal’s decides not to make a discretionary payment; and the Ombudsman simply has no power to interfere with how a discretion should have been exercised.

This is significantly different to what would occur if PayPal was insurance, because a policy of insurance creates legal obligations.  That is, if PayPal Buyer Protection was a policy of insurance, and if PayPal decided to reject the buyers claim, then the buyer can lodge a complaint with the ombudsman because, what is now being disputed is not how the discretion was exercised, but whether the claim was rightfully rejected.