The value of the item is what it sold for, not what you think it's worth. So Royal Mail will quite naturally only compensate you for that amount, once you've proved that you've refunded that amount to the buyer. They obviously aren't going to send you £20 for an item which sold for less than that if that is what you were expecting. (If you feel that the item was worth more than it sold for, you should have listed it at a higher BIN or auction starting price.)
If that doesn't answer your query, and the buyer paid more than the compensation amount you received, and you supplied Royal Mail with all the proof required (proof of the sale price, proof of the refund, etc), then I can only assume that one of the following applies:
1. You bought the wrong Royal Mail service. Standard 1st and 2nd Class is only for items valued at up to £20 (note what I said above - an item's value is its sale price). Signed For must be used for items valued at up to £50. Anything over £50 must be sent using Special Delivery Next Day Guaranteed. If you buy the wrong service, Royal Mail (or any carrier) won't pay out a single penny in the event of loss or damage in transit. So if you were expecting to get £20 in compensation for an item valued at more than that, it won't happen. Nor will you get £20 for an item which sells for less than that, obviously, as I said above.
2. The item is on Royal Mail's 'exemption' list, ie. is uninsurable (as many easily-breakable items are). I see that you're currently selling china, which is one of the things on the list if memory serves. But check it out for yourself at royalmail.com.
@suedotb
