Let's take the case of regular consumer with just one smart phone (let's say iPhone) as their only digital device and they don't have another phone/laptop etc. In this case, if the user lost their phone, then recovering access to their digital identity is going to be several steps:
0. First, immediately after they lost their phone, they should call the customer care number and report loss of their phone and get their sim blocked. This is critical to avoid SMS OTP based account hijacking.
1. They will buy a new iPhone and sim and recover their phone number first. (security of this step is a function of how well telcos operate this process. In my country you have to physically go to a telco authorised dealer shop, verify your identity with a government id proof – this is the weakest step and then initiate a lost sim replacement flow. You have to get a new physical sim and then you can change that to an esim if you wish. To avoid rampant hijacking, there is a mandatory waiting/cooloff period with multiple notifications being sent to old sim if it is still active).
2. They will have to recover their iCloud account on to this new phone. This involves the iCloud password, a verification code sent via SMS to your phone and your old device passcode. This will restore your iCloud account and escrowed keychain on the new phone. For this to work, you should have opted into iCloud Keychain backup.
Obviously, the biggest problem here is if you forgot either of the two passwords (iCloud account password and iPhone screen lock passcode). This is quite likely if you have been using FaceID to unlock all the time.