You can buy insurance that is valid in the US in the Mexican border towns, and I think Mexicans can buy US insurance from some US agencies if they meet certain requirements. There is no requirement for them to actually do this, however. No one checks at the border.
Also, there is a California state law mandating that cars crossing into California from Baja had to be in compliance with emission standards, but it has never been enforced. It is too much of an impediment to the free flow of people and goods that California and the feds are aiming for.