Where are you renting from?

Yes, all US auto insurance is invalid in Mexico so you'll need something. $38/day actually doesn't sound that bad.

If you're a member of AAA you could try them. Perhaps AARP does something too.

When I've driven down from AZ, there are shops as you get close to the border that offer auto insurance (even the small Lukeville/Sonoyta border crossing on the way to Rocky Point).

You do need the owner's permission to drive in Mexico--so in this case Hertz. And you'd need to check any minimum coverage that they require.

Personally, I'd just have them take care of it. Much easier to deal with them if anything happens, than them + another agency.