PORTLAND — A Workers’ Compensation rate increase approved last April has been challenged by the Maine AFL-CIO, which says a monopoly market in central and northern Maine has resulted in mismanagement.

The Maine Chamber of Commerce and Industry will decide Monday whether to join in the appeal of Insurance Superintendent Joseph A. Edwards’ award of a 4 percent rate increase to insurers as well as a 3 percent surcharge to cover operating losses in the so-called assigned risk pool.

The Maine AFL-CIO appeal was filed last week in Kennebec County Superior Court.

At the heart of the controversy is the refusal of the state’s insurers to voluntarily write Workers’ Compensation insurance and, more recently, to do business at all in northern and central Maine despite a package of 1987 reforms aimed at stabilizing the market.

As a result of the reforms, six insurers agreed to remain in Maine but continued their refusal to voluntarily write Workers’ Compensation policies. Therefore, most companies were placed in the “assigned risk” pool — where insurer losses are protected — regardless of their safety records and charged the maximum rates.

But none of the six insurers wanted to serve northern or central Maine, where they had no offices or staff. Instead, they contracted with American Fidelity in 1988 to provide the coverage for that area. Northern MGA Inc. was hired as the “servicing agent,” which meant it was responsible for safety inspections and handling the claims.

Both the AFL-CIO and employers who finance the system that protects injured workers say the monopoly has resulted in spotty safety inspections, poor claims investigations and higher rates in the 11-county area.

Edwards and American Fidelity agree there were problems, although they also said improvements have been made.

“It was obvious to many that any organization undertaking to service upwards of $40 million in premium volume scattered over the enormous area of Maine’s 11 counties was going to face difficulties and would not perform flawlessly from the outset,” Edwards wrote in his rate decision.

MGA referred questions to American Fidelity. George Lagos, vice president and general counsel for the New Hampshire-based insurance company, said that when his firm undertook a commitment to serve an area no one else wanted, its business doubled.

“The increased growth created some servicing problems” for MGA, he said. But he said “significant improvements have been made.”

Edwards says he has been working with American Fidelity and MGA to improve the situation and the efforts are paying off.