A family of Microsoft word processing software products for creating web, email, and print documents.
I believe the main cause of the issue is that your installation of Office 2011 is nearly 4 years behind on updates... That's probably complicated by the fact that you're running it on the most contemporary release of the operating system.
I'd suggest that before chasing symptoms that you first go to the Help menu in any Office program & select the Check for Updates command. You'll need to apply only the 14.5.8 update which is cumulative. After installing it, Restart your Mac before launching any of the Office programs.
Also, make sure you're using the Insert> Photo command... the wording of your message suggests that you may be trying to use Insert> Object instead.