First and foremost, one needs to understand something before one can demonstrate it. Chances are that everything you know about conflict is wrong or misleading. So, do some research first: What is crime like in your area? What does it involve? What are the common crimes and the uncommon ones? This is all statistics basically. You should be able to get those online at various sources. For example, in the UK the police.uk site does just that. But wait, that's just crime! How about warfare? How about bullying at school? How about aggressive behaviours at work? ... Conflict takes many forms.
One thing to remember: Anecdotes are not evidence. Just because X happened once to Y does not mean you should train against X. Worst still is hearsay. Just because someone claims that HIV positive blood in needles are the new weapons in $YourHomeTown does not mean you should tailor your training to avoid needles. Anyhow, side rant over.
So, now you know what type of conflict you want to protect against, how it arises, and hopefully how to deal with it for a legal point of view. Ah yes, it might be worth talking to a lawyer about what you teach. You really do not want to give your students wrong legal advise, now do you?
That is a lot of work. Possibly well beyond the scope of a humble martial art instructor.
A stop gap is to recognise that stress/fear makes us do stupid things: we talk to the police instead of a lawyer, we panic and seem like easy prey, and so on. Martial arts will teach you to be more self-confident, to have more self control which will help. One of the best way I have seen to deal with this is randori (or light sparing however you call it) against one or two or three opponents. It adds so much chaos that it forces you to think, to react, and after a while it becomes less scary.
Maybe the answer lies in mushin, nugamae... In my little world of Aikido, we teach pins. Most of the time, I keep telling beginners to look up instead of down -- the infamous "nobody looks good with their arse in the air". When they ask why, I tell them (i) to look good (right?), (ii) in the dojo, to protect uke who cannot move from other students not paying attention, and (iii) because it enhances tori's perception of their surrounding. The latter is key. Unless you detect that you are in danger, you cannot do a thing about it. A good starting point is Marc McYoung's site.
So, my not so humble answer to your question is: train awareness.
Wow, took a while to get there... ^_~