Who may sell you an AI audit is now California law

Issue 09 had AB 1405 awaiting the Governor, with September 30 as the constitutional deadline; the legislature’s record now shows it presented, approved and chaptered on September 9, that is, filed with the Secretary of State as Chapter 178, Statutes of 2026, with SB 813 chaptered the same day as Chapter 179. AB 1405 decides, from January 1, 2029, who may sell an audit of the controls an AI system needs for compliance with California law and what the report must say; SB 813 gives the state until January 1, 2028 to set its terms for designating such an auditor as an independent verification organization.

This week’s story: what a covered AI audit is, and who may sell one from 2029

A covered AI audit is “an audit conducted to assess internal controls, processes, or systems implemented for an AI system or model that are necessary for compliance with state law,” and AI means “an engineered or machine-based system that varies in its level of autonomy and that can, for explicit or implicit objectives, infer from the input it receives how to generate outputs that can influence physical or virtual environments.” By January 1, 2029 the Government Operations Agency must have an AI Auditor Registry online, and from that day “a person shall not offer, sell, or conduct a covered AI audit unless the person is registered with the agency pursuant to this chapter.”

The report a registrant owes its auditee must include at least six things: the scope and objectives; the results and their basis; for each deficiency, measures that would address it, if appropriate; whether the auditee followed its own internal safety standards; the limitations, “including any matters within the scope of the audit that were not assessed and any material gaps in the evidence, information, systems, or access available to the AI auditor”; and a signed, dated statement that the audit followed the chapter.

The auditor keeps the report and its basis for at least 10 years.

A registrant may not audit “the auditor’s own work, including a system, process, control, assessment, or other subject matter that the auditor materially designed, developed, implemented, or operated for the auditee,” and may not staff an audit with anyone the auditee employed in the preceding 12 months with material responsibility for, or material participation in, its subject matter. SB 813 adds a designation the agency may confer, the independent verification organization, and one criterion the agency must weigh is that an IVO “shall not accept terms which condition any payment or the amount of any payment on the results of their assessment.”

Where an insurer buys a validation of a rating, underwriting or claims model that meets the chapter’s definition of AI, to show compliance with a California statute or regulation, our reading is that the chapter reaches the engagement: from 2029 the seller must be a registrant and the report must carry the six items above. SB 813 says it does not require anyone who “develops, deploys, or operates an AI system or model to engage an IVO or to undergo a covered AI audit” as a condition of doing so, and AB 1405 does not “impede, delay, or otherwise affect” an audit required under another statute or regulation operative before it. Neither chaptered text, on our read of September 15, contains the word insurance.

What to do this week

• The engagement letter for any external model validation you have bought or are buying is the thing to read this week, against the six report items in section 11549.83(d). Where the scope says the work will test controls kept for compliance with a California statute or regulation, note it: that is the engagement our reading above puts inside the 2029 registration rule, and a letter silent on limitations and evidence gaps is silent on the item the statute writes out most fully. Our vendor risk assessment guide has the documentation on request clause, which puts a deadline on handing validation records over.
• A validator that also built, implemented or operates the model it validated is the arrangement section 11549.83(f)(1)(B) bars a registrant from taking on. Go through the validations relied on in your last examination file and mark whether that was the case for any of them; the answer changes nothing this year and, where California law is what the validation was for, decides who can do the next one from 2029. The glossary entries on model validation and audit rights cover the exercise and the contract side of that separation.
• Colorado’s Attorney General takes written comment on its proposed rules for automated decision-making technology, ADMT, until October 26; decide this week who reads them for anything that reaches past the insurance deemed-compliance route in SB 26-189. California, meanwhile, sits in our state tracker on a 2022 Department of Insurance bulletin that predates the NAIC model bulletin, not on either chapter signed this week.

On the Docket

• September 29, 2026: Comments on version 5.0 of the AI Risk Evaluation Supplement are due by close of business, and the page of the NAIC’s Big Data and Artificial Intelligence (H) Working Group still carried no agenda or materials for its October 8 session when we read it on September 15. Whoever is deciding whether to write before this deadline or wait for that session. NAIC working group page

• October 26, 2026: Cutoff for written comments on the Colorado Attorney General’s proposed rules under the ADMT Act and the Chatbot Safety Act, received by what the page calls “11:59 P.M. MST”, and later only if the formal rulemaking hearing runs past that day. Insurers with Colorado business, whose route through the new act our article on SB 26-189 traces to the Division of Insurance’s own regime. Colorado Attorney General rulemaking page

• January 1, 2028: SB 813’s date for the Government Operations Agency to have IVO application requirements, designation criteria and suspension procedures in place and published; the same section tells the agency, where practicable, to let reports prepared for substantially similar requirements count if they meet its own. Anyone whose validator may seek the designation, and anyone who would rather read the criteria before choosing one. SB 813 chaptered text

• January 1, 2029: AB 1405’s date for the registry to exist and the first day on which a covered AI audit may be offered, sold or conducted only by a registrant. The registry will carry each auditor’s registration number and the California laws or regulations each audits under. Anyone who buys, or sells, a review of controls kept for compliance with California law. AB 1405 chaptered text

This week in brief

Governance

NYDFS said on September 10 that Covered Entities “must maintain documentation sufficient to demonstrate how cybersecurity risks were identified, assessed, and addressed through the Risk Assessment process,” and its examples of emerging risks to consider open with “the adoption or use of artificial intelligence.” The letter says it “does not create new obligations,” and our report on the letter carries the five gaps the Department says its examinations found. NYDFS Industry Letter

A $999.99 fine is what Reuters reports Los Angeles Superior Court Judge Elizabeth Bradley ordered on September 11 against Jacquelene Robinson of Musick, Peeler & Garrett, State Farm’s counsel in the case Issue 07 covered, for seven case citations that did not exist; we had found no public copy of the order as of September 15, so what it says rests on that report. Robinson’s declaration, in which she accepts responsibility and lists the citation checks she now runs, is the filing we can link. Robinson declaration

Business Lines

Texas had a September 14 date under the Governor’s August 24 directive for recommendations from the Texas Department of Insurance on further administrative and statutory steps, and as of September 15 neither TDI’s 2026 news page nor the Governor’s news page listed anything filed under it. TDI’s most recent release, dated September 10, is on what Texans told the department about their top insurance concerns, a separate exercise. Governor’s directive to TDI

The engagement letters already signed are where the two chapters meet practice. Reply to the email this issue arrived in and paste what your own letter puts under limitations, or write us the word none, and section 11549.83(d)(1)(E) is what we will put beside it.

– The Editor, InsureAI Wire