Final answer:
The California insurance code allows for insurable risks which are uncontrollable occurrences like natural disasters. Option 1, Earthquake, is an example of an insurable risk, whereas the other options may either be too complex to insure, encourage moral hazard, or involve issues of moral and legality which make them uninsurable. The correct option is 1.
Step-by-step explanation:
According to the California insurance code, insurable risks are occurrences or economic risks over which an individual has little control but can still be quantified and covered by an insurance policy.
Among the options provided, Option 1: Earthquake can typically be classified as an insurable risk. Earthquakes are natural disasters, and while we cannot predict exactly when they will occur, they are events that insurance companies can assess for risk and provide coverage for.
In contrast, covering a pre-existing health condition could be controversial due to adverse selection, where people with higher risks are more likely to purchase insurance.
Loss due to illegal activities cannot be insured because it encourages moral hazards and goes against public policy. Lastly, political instability is usually excluded because it is often considered too large and too complex for insurance companies to accurately assess and cover. The correct option is 1.