Forget about sensors for a moment: We don't deal with malfunctioning PEOPLE right now. Drunks, old people, and visual impaired people routinely climb behind the wheel everyday. We are already running over darting children, cyclists and pretty much anything else with the temerity to set foot, hoof or paw on the road. Old people ramming cars into crowds because they can't tell the brake from the accelerator are just the cost of doing business in a free society.
A self-driving system doesn't have to be perfect, it just has to be better than what we have now when we scale it up. Given that you can give a driving AI the equivalent of millions of miles road experience in all conditions, I doubt that AI's will drive worse than human beings for much longer.
The insurance companies will need to be convinced for sure, but they will be when self-driving systems demonstrate their superiority.