Don't let misinformed postal clerks make your business decisions.
Surface to Australia will take easily 12 weeks and possibly longer. The only thing you can do is communicate with your buyer and hope they understand. Presuming you only charged them for shipping in line with what you paid you might ask that they accept a refund and repay if/when the package does arrive (which it eventually should).
Insurance is to protect sellers, buyers don't need insurance especially if they pay with PayPal.

"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.

"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.