but the cost of the vehicle increases, which would have an unhappy effect on premiums.

All of that extra cost was R&D, which is currently being funded by Google's advertising. While I have no idea what Google's business model will eventually be with self-driving cars, at the end of the day it's just software and some cameras that can be mass-installed on most any car.

While the cost will initially be higher, it likely won't be much, and will eventually be negligible.

I'm not sure the sensors are negligable...