This is what happens when air meets water, this all is the consequence of light travelling at at lower speed through water than air.
http://plus.maths.org/issue15/news/refract/pencil.jpg
But, if you look at the pencil completely underwater, if you're underwater yourself ( with diving glasses ), you'll just see the pencil as it is outside of water.
If you're underwater with diving glasses, the ratios and distance to other swimmers are different, but the image is as if you were looking at people "swimming" in air. They won't look wavy...
Photo Shark - Bahamas Underwater Photography
This is completely taken underwater. As you can see, the shark doesn't look blurry, it isn't distorted. Underwater, fog is the most important effect you'll need.
Koen