Under Mexican law the police detain all parties in an accident until guilt has been determined,

and some sort of financial settlement reached. This law applies equally to Mexican citizens and foreigners.
An insurance policy will demonstrate financial responsibility, even if guilty, and will allow you continue on your way (if possible). Just to protect yourself from the hassle of dealing with the Policia and their jail, it's a good idea to have at least basic liability coverage. (Jail is a common detainment area while accident issues are being resolved.) It's easy to get Mexican vehicle insurance at most border areas. The insurance is rather expensive when purchased on a daily basis (about $5-$8US per day for an auto). There are plans other than the daily ones available at the border - ask about them. I believe that what they do at the border is charge you for the most expensive car on their list, unless you clearly negotiate the appropriate rate. If you will be traveling for two weeks or more, it probably pays to get an annual policy. Request a policy which covers the smallest region within which you'll be traveling.

 

Baja Relocation uses and recommends AMISI Insurance Services - Specializing in Mexican Insurance for US or Canadian citizens living or traveling to Mexico and can help any one of your customers insure anything in Mexico using our network of Insurance producers in Mexico.

 

Why do I need Mexican Auto Insurance?
Here an article submitted by Steve Blum, a guru on  Mexican  Insurance located in Temecula, Ca.

 

There is a lot of confusion regarding the need for Mexican Auto Insurance for tourists. Even though most American Insurance companies offer coverage to cover your vehicle within a certain mileage limit of the border, it is your responsibility to have the vehicle brought back to the states. Others require an amendment to offer any coverage at all. Although this may satisfy some financial responsibility to your lien holder, it DOES NOT satisfy Mexican Law. The simple truth is that if you drive your car into México, Mexican law REQUIRES that your car be insured with an admitted Mexican Insurer. If you are in an accident in Mexico and have no Mexican Insurance policy, you may have your car impounded and you could go to jail, along with the financial nightmare that could occur. 

There are approximately 65 insurers admitted in México. With the relatively small number of insurers in México, the financial strength and service standards of Mexican underwriting companies varies dramatically. The top five companies for Tourist Automobile Insurance include: ANA, Qualitas Seguros, Seguros Comercial America, GNP Seguros and Tepeyec Seguros.

While U.S. and Mexican Auto policies differ in language, rules and conditions, they do have basic similarities. You have options to purchase either liability only, or liability and physical damage to your auto. Legal Aid is an important coverage to add to your Mexican Auto policy. Like in the United States, reading over an insurance policy can be confusing. You have to be familiar with Insurance, or be a practiced attorney to understand most of the clauses and provisions in any policy. Be sure to understand those differences prior to your purchase!

When purchasing México Auto Insurance, make sure you are dealing with a reputable organization, backed by a solid carrier. It's advisable to check with the Better Business Bureau or even the Department of Insurance to verify that the entity you purchase your Auto policy from is valid, and licensed to offer it. The easiest way to buy Mexican Auto Insurance appears to be via the Internet. There really is no confusion for Americans living in México as to whether or not you need Mexican Auto Insurance--you do. The law is very clear, just make sure the coverage you buy satisfies your needs.